Many businesses that undertake a large number of projects could benefit from a sampling methodology to calculate their R&D tax relief and streamline the claim process.
A prime example is an engineering consultancy because it must solve technological challenges on a regular basis to deliver solutions to clients that cover a range of engineering developments from infrastructure to energy facilities. So it is not surprising that a considerable portion of such companies’ activities are likely to meet the R&D tax credit eligibility criteria. The same can be true for large companies in a range of business sectors.
However, keeping track of the eligible work and related costs is a major task for companies that undertake hundreds of projects a year. One solution to providing robust and sustainable process to assess and track projects is to adopt a standard methodology for every project.
In our experience, while this can give a clear framework for the business, it often leads to overly rigid methodologies being adopted, which can mean larger businesses under claim and therefore do not access their full entitlement to the R&D tax scheme. This issue is particularly acute where a standard method has not be updated for many years as the business has grown and in some cases evolved.
Staying up to date and making the right claims
As your business expands, new teams form and your systems change, the methodology you use to identify R&D projects and track costs should be reviewed and updated to ensure that you are capturing and claiming relevant costs for your RDEC claims.
For example, BDO was engaged by a large multinational engineering consultancy to support their RDEC claims that had previously been supported by the same advisor for over 10 years. The business employs around 30,000 people globally of which over 2,000 individuals are based in the UK. As they are specialists in infrastructure and operate within the Oil & Gas and Defence sectors, maintaining a low risk tax profile was essential to their organisation.
We were able to leverage industry expertise from within our team and use our intimate understanding of large and complex company structures to navigate and map the business’s operations and financial systems. This analysis enabled us to develop a new sampling methodology for R&D claims and agree it with HMRC - superseding an existing methodology agreed with HMRC over 10 years previously.
Applying the new and holistic methodology allowed the business to identify a 500% increase in R&D qualifying spend. As BDO had worked in close collaboration with HMRC to agree the methodology, the business had the reassurance that using it to build its RDEC claims would not trigger challenges from HMRC – protecting its low risk tax profile.
Once you have agreed a robust and sustainable R&D claims methodology it may be applicable for several years but it is always wise to review annually to ensure it remains relevant and accurate for your current operations, new acquisitions and joint ventures.
If you would like an independent review of the way you control and compile R&D claims please get in touch with Cathy Kelly.
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