The R&D claims market is unregulated, which means there are no rules that third parties processing your R&D claim have to follow.
As a result, the spectrum of R&D claim specialists out there varies widely, from outright ‘cowboy’ firms operating on the fringes of legality all the way up to upstanding R&D specialists that produce compliant claims without sky-high fees (the latter, sadly, being the minority).
Consequently, it can be difficult for companies not familiar with the R&D claim market to validate the trustworthiness and quality of a potential vendor. So to help with this, we have identified common red flags to look out for.
Selecting a reputable R&D claim vendor has never been more critical. Since May 2022, HMRC is cracking down on fraudulent and inaccurate claims by scrutinising them more closely. To put it into perspective, recently they’ve vastly expanded the size of their R&D claims team from around 25 to 125.
What’s the problem with hiring the wrong R&D specialist?
There are many risks involved in claiming R&D relief, from reductions, penalties, wasted resources and time, to rejections and even fraud investigations.
Most commonly, overly aggressive, incomplete, or incorrectly filed claims could lead to HMRC opening an enquiry into your activity. And if not ‘defended’ properly, it can lead to the above risks.
The quality of your claim and defence of further scrutiny depends on the knowledge and skill set of who you choose to produce and file your R&D tax claim.
So what should you look out for when choosing an R&D tax specialist?
9 Red flags to avoid when choosing an R&D specialist 🚩
- Uncapped contingency-based fees 🚩
In general, any agency that states ‘no-win-no-fee’ and doesn't have a price cap should be avoided. This type of business model leads to aggressive claims and those are very rarely correctly filed. Exaggeration of your R&D can get your company in a lot of trouble. And we doubt they will stick around in the event of an enquiry.
- Fixed low fees 🚩
Like most things, you get what you pay for. A foolproof R&D claim requires trained professionals specialising in both R&D tax as well as technology.
A comprehensive R&D team should have relevant experts available in-house or at least on a contractor basis. This isn’t cheap. So a fixed low fee is a sign that the necessary expertise won’t be on hand, which is vital to writing an HMRC-compliant report (see point 7).
- Unclear fee structure 🚩
Beware of unclear pricing. Transparency is key and is your first clue of how the specialist conducts business. If the website or marketing materials don’t show their fee structure, you are likely to be stung with hidden extras and an unexpected bill further down the line. So when a vendor tells you, ‘Let’s discuss the price on a call’, be wary.
- Multi-year ‘lock in’ contracts 🚩
You should avoid being tied to any one provider: if an R&D specialist locks you in, this is to safeguard them and they have no incentive to provide a good service. Your loyalty to a provider should be earned and not bought.
- ‘100% success rate’ with no details 🚩
Don’t trust any R&D specialist that promises a ‘100% success rate’ without telling you how many claims they’ve done, how many enquiries they’ve had to defend, and how many of those enquiries resulted in a reduction or rejection by HMRC. Remember, transparency is your first sign of a good fit.
If they squirm, avoid the question, or tell you they haven’t had any enquiries, this is another red flag. It either means they don’t defend enquiries for their customers, that the company is very young, or doesn’t submit many claims.
Any R&D specialist that has submitted a reasonable volume of claims will have had at least a few enquiries: they’re impossible to avoid, since HMRC conducts random spot-checks.
Also, check for legitimate reviews and testimonials from real clients. We recommend independently finding and reaching out to a small sample of their previous customers to ask about their experience. For example, asking if anyone has heard of or used the provider in a local finance lead/CFO group is a great validation check.
- Majority of staff in sales & marketing 🚩
Having more people in sales and marketing means they prioritise selling over anything else. This is a sign of aggressive sales tactics such as untargeted cold-calling and ambulance chasing.
- No in-house R&D tax specialists or software engineers 🚩
A reputable R&D tax claim specialist should have trained tax experts and qualified technical experts or engineers on staff. This is especially important for software claims.
That’s because to file an HMRC-compliant claim, you must write and submit a thorough technical report. The report must explain your R&D activity from a technical perspective ( requiring software engineer expertise). This is tricky to do and not just anyone can do this, not even your accountant.
You can check this by looking at the specialist’s LinkedIn. For example, Claimer’s R&D tech specialists go through rigorous training and shadowing before they meet the standards needed to produce an HMRC-compliant report.
- No support in case of an enquiry 🚩
If a specialist doesn’t offer complete support in the event of an HMRC enquiry, run. Enquiries are long-winded affairs that typically require extensive R&D tax and technical training and experience to defend properly.
A properly produced R&D claim report will significantly reduce the chance of an enquiry, so specialists that do not offer enquiry support, or charge extra for it, means they do not have confidence in their own report.
- Estimates without any initial inspection 🚩
Forget online R&D calculators - they’re incredibly misleading. Determining your qualifying spend (which is the first step to determining your take-home tax relief) first requires an analysis of your R&D activity.
You cannot get this from a calculator. You can’t even get it from talking to a specialist salesperson. It requires a conversation between someone very familiar with the technical project you want to claim for and a summarised breakdown of the expenditure during the period.
So what should you be looking for?
This list is not exhaustive and there are plenty of bad actors out there, which is why HMRC are cracking down.
Claimer’s founder, Adam, raised several million pounds to disrupt the space of R&D tax for exactly this reason. Find out if we can help you.
👋 If you’re interested in talking to an expert at Claimer about what you can claim, chat with us using the live chat (bottom right) or pop us an email. Or, if you’re ready, you could get started with your claim right away.
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