Let me start by saying that accountants are great. I used to have the typical view of accountants (“how can anyone be so fascinated by columns of numbers?”), until, one day, I realised the fundamental truth: accountants spend a large part of their time and energy figuring out ways to help you pay less tax.
That’s a noble purpose if there ever was one!
The big question we get asked a lot is: Should I be using an accountant for R&D Tax Credits?
We (at GrantTree) work with many accountants, and we love accountants. GrantTree couldn’t exist if accountants didn’t do their tireless work of preparing clients’ accounts, educating people about accounting principles, and, making sure everything does indeed add up properly. The vast majority of our clients use the services of an accountant, and without exception, those who don’t are a lot more work for us than those who do.
Every so often, when I pitch our R&D Tax Credits service, I encounter an objection that seems very odd, and yet is understandable. Usually, it goes like this:
“But, I talked to my accountant and they said they could do it much cheaper.”
Even more damning (apparently), the potential client might have spoken to other company founders in their sector and gotten the idea that they too filed their tax credits cheaply with their accountant. This sets up a perception that we’re trying to somehow charge them a lot of money for something their accountant will do for very cheap or even free.
Like all debates that start with a semantic misunderstanding, this one can go on for a long while unless the meaning of words is clarified.
Apples and pears in using an accountant for R&D Tax Credits
All accountants can “do R&D Tax Credits”, depending on how you define that proposition.
In fact, GrantTree works with an accountant to handle the filing part of the process. That part is not difficult, and in fact, if it’s your own accountant, they should probably do it for you at no extra charge as part of their normal service, because it’s a simple matter of filling a couple of extra boxes in the Corporation Tax Return (CT600) that they’re preparing for you anyway and including some documents along with the filing.
However, that’s where most accountants stop – at the filing. A few will have some vague (and sometimes not quite correct) understanding of what constitutes qualifying R&D. Almost no accountant will provide the level of service that a specialist consultancy provides.
Anyone can file a piece of paper with HMRC, but if your accountant is claiming that they “do R&D Tax Credits”, ask them if they will help you with the following aspects of it:
- Discussing your technology in detail to figure out if it does indeed qualify
- Evaluating your technology with consideration of which R&D Specialist Unit will be looking at it (different ones have subtly different criteria)
- Preparing a technical narrative that presents your technology in the best possible way to minimise the chances of an audit
- Calculating the size of the claim based on HMRC’s ever-changing criteria (which are also specific to each R&D Specialist Unit)
- Filing the claim directly with a specialist unit to ensure that it is looked at by a specialist (and not an HMRC inspector who suddenly takes an interest in tax credits but has never looked at a claim before)
- Following up on that filing to ensure it is looked at promptly
- Providing a first line of defence when handling questions from HMRC (including ones about the technology), so that unless an audit is requested, you don’t even need to worry about the claim and just wait for the money to come in
- If an HMRC enquiry does occur, prepping key tech and finance members of your team so that they know how to answer questions in the most favourable way, and sitting in the audit meeting with you to help handle HMRC questions
Give them this list and ask them how much of it they will do.
In most cases, they will do none of it.
In rarer cases, they will claim to do a small part of it. Very few accountants can realistically claim to do all of this, though. In particular, since most of these activities require a deep understanding of technology, any accountant who claims to be able to do all this but is not a technology expert in your specific industry is necessarily misleading. However, most specialist firms like GrantTree have technical specialists on staff and will do all of this.
“But you’re more expensive…”
Given the vast difference in the service levels between accountants and specialist firms, it’s no surprise that the latter have a different pricing model. However, in practice, specialist firms are actually much cheaper. This may sound surprising, but here’s how.
Anyone can prepare their own tax credit claim if they have the time or inclination. In fact, our R&D Tax Credits guide lists many articles that will help you do just that. However, there’s a difference between doing a job and doing a job well, and in this case the difference materialises itself in three ways:
- decreased claim size
- increased risk
- wasted time
Decreased claim size
Most people who file their tax credits themselves (which is what you’re doing when you “use your accountant”) don’t have the time to fully understand how to maximise the claim size. Recently, we helped more than double a very substantial claim, compared to what they had filed themselves with their accountant. Had they filed with us immediately, they would have had a lot more money sooner. The 20% fee becomes irrelevant when you think about it this way.
Even if think you’ve got your calculations right this year, what about next year? And the year after that? Are you really sure you got the calculations right? HMRC’s regulations have changed every year for the last 3 years – I’d be surprised if that didn’t continue for the coming years. Do you really want to spend the time to stay up to date on tax credit regulations? As a technology company founder, you usually have better things to do with your time.
A specialist firm will know exactly where to draw the line to maximise your claim while minimising the risk of it, each and every year.
This is the other side of the coin, of course. A poorly conceived tax credit claim can easily lead to an HMRC audit, all the way to a scary-sounding “aspect enquiry”. If you then don’t handle that well, you could lose the entire tax credit.
Because specialist firms work on success fees (with setup fees being refundable if the claim is rejected), they are strongly incentivised to present cases that are solid and can be defended in an audit and to help you defend the case if it is queried.
Finally, there’s the obvious, and probably least important benefit: the time you save by not having to learn about R&D Tax Credits or prepare documentation. For busy founders and directors, even this is valuable.
A serious reading of the R&D Tax Credit legislation will take at least a couple of days of your time for an uncertain result. This opportunity cost doesn’t apply to founders of very early startups who are cash-poor and time-rich, but it does apply to any business that’s growing rapidly.
In other words, by using a specialist firm, you increase the total size of your claim (passing a well-earned success fee to the specialist firm) while transferring all the work, effort and risk to the specialist firm. You end up with both more money and more time.
These benefits are absent when you file with your accountant (effectively by yourself). So of course, using your accountant is cheaper – you’re doing all the work yourself, taking on all the risk, and leaving the claim size to chance.
I don’t want to be too pushy about this, but it is frustrating when two vastly different service levels are compared based on price.
Hopefully, this article clears up why accountants are “cheaper” and why going with a specialist is a different service altogether, and cannot be compared based on price any more than a consultation with a lawyer can be compared with preparing your own legal defence based on articles found on Google.