R&D TAX RELIEF CASE STUDY
A company that designs, develops, and manufactures audio equipment had been making R&D tax credit claims using internal resources. For 2 consecutive years, the claims averaged £40,000 per year in tax savings/cash refunds. Introduced to RDP Associates Inc. (RDP) by one of our accounting firm partners, we carried out a detailed review of the firm’s claims as well as the process undertaken to prepare the claim request.
RDP’s Key Findings on the Initial R&D Tax Credit Claim
- The accounting firm reviewed the BIS guidelines with the client to ensure they understood the 3 main criteria to be met—technological advancement, uncertainty and the concept of systematic investigation and experimentation.
- The client reviewed their list of development projects and selected eligible R&D projects.
- The client then prepared a narrative or description of each project for the accounting firm’s review.
- The accounting firm reviewed the narrative and made some revisions to eliminate ineligible areas or activities.
- The client supplied information enabling the accounting firm to allocate costs to the eligible projects.
- The accounting firm worked with the client to gather costs that related to the R&D projects.
- The accounting firm prepared the necessary tax forms and submitted the tax return and R&D tax credit on the client’s behalf.
- The claim was accepted and the client received a refund of £80,000, over a two-year period
- When RDP and the accounting firm began working together on this existing R&D tax credit claim, we not only reviewed the initial request but also carried out a thorough assessment to determine if the client could obtain additional tax savings. We shared our assessment findings with the accounting firm partner and suggested revisiting the 2 claims that were originally submitted.
- Below is an overview of how we were able to increase the returns the company received.
- RDP’s key technology professional, an electrical engineer, met with the client’s key technical staff that identified the eligible R&D projects and activities.
- Initially, RDP focused on what projects were NOT claimed and why.
- We realized that even though the client was aware of the BIS guidelines and the eligibility criteria, they had many misconceptions with regard to eligible activities.
- RDP’s technology professional reviewed the projects in detail and reassessed the claim.
- Additional R&D projects and activities were identified, new narratives were prepared and the associated costs were allocated.
- The corporate tax return was amended and the claim was resubmitted along with RDP’s R&D tax claim information package.
- HMRC reviewed the submitted incremental claims and queried a few items to which RDP replied, thereby alleviating the queries.
- The revised claims for the two-year period were accepted in full for £232,000.
Through RDP’s interview-driven R&D claim process, the company received an increase of 190% of the original claim submission! The difference between the two claims was £152,000.
Here are 3 main reasons for the difference between the two preparation methods and the results:
- RDP’s peer-to-peer approach delves into the scientific work in more detail to fully understand what is being accomplished on a technology level.
- RDP dispels the common myths behind what qualifies as R&D.
- RDP prepares over 1,000 claims a year and understands all the nuances, thus ensuring that every eligible project, activity, and cost is claimed.