The claim the engineers never saw

An electronics manufacturer with about 80 staff engaged an adviser on a fixed fee of $35,000 to prepare its claim. The adviser worked with the finance team: payroll by project, materials, subcontractors. The engineers who had done the development work were busy, and the adviser offered to write the technical descriptions from the project files and a short questionnaire. The claim came to $250,000 on the shared example. Illustrative figures.

A fixed fee for the whole claim, review support included, and a clause making the company responsible for the accuracy of the claim. The letter said the company would approve the final version before filing; the finance director approved a summary with the totals, and the technical descriptions went in unread by anyone who had done the work.

A review came eighteen months later. The tax authority asked the company to explain the technical uncertainty in two of the five projects. The engineers, reading the descriptions for the first time, said that one project had been a straightforward application of known techniques and that the description overstated it. The claim was reduced to $150,000. The company repaid $100,000 with interest where it applied.1Source 1The business repays a reduced claim, with interest and penalties where they apply: IRS, "Interest" and "Accuracy-related penalty" (United States); HMRC, "Tell HMRC if you've claimed too much R&D tax relief" (United Kingdom); Revenue, Tax and Duty Manual Part 29-02-06, "R&D tax credit: clawback of relief" (Ireland); Income Tax Act section 161(1) and CRA, "Avoiding penalties" (Canada); Department of Industry, Science and Resources, "Decisions we make about R&D Tax Incentive applications" (Australia); Inland Revenue, "Interest on overpayments and underpayments" and "Shortfall penalties" (New Zealand); IRAS, "Penalties for errors in tax returns" (Singapore). More detail on your country page. The adviser helped with the review as the letter provided, at no extra charge, and the fixed fee did not change. Illustrative figures.

The repayment of $100,000 with interest, and the engineers' time in a review that would have taken an afternoon before filing. The fee model was not the problem: a fixed fee with review support included is a fair arrangement, and it behaved as agreed. The problem was that the people who could judge the technical case never saw it. Illustrative figures.

Half a day of the engineers' time before filing, reading their own projects' descriptions and striking out the one that did not hold. The question who will do the technical work?, answered with interviews rather than a questionnaire. The who signs the claim clause with its sentence that the people who did the work have reviewed the descriptions. The script for asking to see the claim before filing, sent at the start of the engagement so that the review time was in the plan. The green flag they talk to the people who did the work is the one this company would look for next time.

Sources

1. The business repays a reduced claim, with interest and penalties where they apply: IRS, "Interest" and "Accuracy-related penalty" (United States); HMRC, "Tell HMRC if you've claimed too much R&D tax relief" (United Kingdom); Revenue, Tax and Duty Manual Part 29-02-06, "R&D tax credit: clawback of relief" (Ireland); Income Tax Act section 161(1) and CRA, "Avoiding penalties" (Canada); Department of Industry, Science and Resources, "Decisions we make about R&D Tax Incentive applications" (Australia); Inland Revenue, "Interest on overpayments and underpayments" and "Shortfall penalties" (New Zealand); IRAS, "Penalties for errors in tax returns" (Singapore). More detail on your country page.  Back