A second opinion before filing

A life sciences startup with about 20 staff had a draft claim of $250,000 prepared by its adviser on a 20% fee of the amount received. The founders were scientists and read the technical descriptions carefully. One project, worth $50,000 of the claim, described work that they thought was closer to routine validation than to resolving uncertainty, and they were not sure. Illustrative figures.

The engagement letter with the adviser was sound: fee on the amount received, review support included, full claim before filing with written approval as a condition. The startup also engaged a second adviser, on an hourly basis with a budget, to review the draft claim before it was filed.

The second adviser read the technical descriptions and the test for qualifying work in that country,1Source 1The legal test for qualifying R&D: Internal Revenue Code section 41(d) (United States); Corporation Tax Act 2010 section 1138 and the Guidelines on the meaning of research and development for tax purposes, via HMRC CIRD81300 (United Kingdom); Taxes Consolidation Act 1997 section 766, via Revenue Notes for Guidance Part 29 and Tax and Duty Manual Part 29-02-03 (Ireland); Income Tax Act section 248(1) and CRA, "Guidelines on the eligibility of work for SR&ED tax incentives" (Canada); Income Tax Assessment Act 1997 section 355-25, via Department of Industry, Science and Resources, "Conducting core R&D activities" (Australia); Income Tax Act 2007 section LY 2, via Inland Revenue, "Eligible R&D activities" (New Zealand); Income Tax Act 1947 section 2 and section 14C (Singapore). More detail on your country page. spent a day with the founders, and agreed with their doubt: the project could be argued either way, and the records to support the stronger reading did not exist. The founders took the project out. The first adviser accepted the decision without difficulty, and the claim was filed at $200,000. No review followed. The founders kept both the review report and the reasons for leaving the project out, in case a review ever asked. Illustrative figures.

The second adviser's fee for a day's work plus reading time, within the budget agreed, against $10,000 less in the first adviser's fee and a $50,000 reduction that never had to be repaid with interest. The founders judged it the best money they spent that year. Illustrative figures.

Nothing needed to; this case shows the arrangement working. The getting independent advice page says when a second opinion earns its cost: before a first claim that is large for the business, before a claim with work your own people are unsure about, and before anyone contacts the tax authority about a past claim. The question how do you decide what qualifies? is the one the founders asked themselves, and the hourly fees page shows the model that suits a defined piece of work like this one. The green flag they tell you what does not qualify applied to both advisers by the end.

Sources

1. The legal test for qualifying R&D: Internal Revenue Code section 41(d) (United States); Corporation Tax Act 2010 section 1138 and the Guidelines on the meaning of research and development for tax purposes, via HMRC CIRD81300 (United Kingdom); Taxes Consolidation Act 1997 section 766, via Revenue Notes for Guidance Part 29 and Tax and Duty Manual Part 29-02-03 (Ireland); Income Tax Act section 248(1) and CRA, "Guidelines on the eligibility of work for SR&ED tax incentives" (Canada); Income Tax Assessment Act 1997 section 355-25, via Department of Industry, Science and Resources, "Conducting core R&D activities" (Australia); Income Tax Act 2007 section LY 2, via Inland Revenue, "Eligible R&D activities" (New Zealand); Income Tax Act 1947 section 2 and section 14C (Singapore). More detail on your country page.  Back