In-house or adviser

Some businesses prepare their own R&D claims and do it well. Some use an adviser and are glad they did. Neither is always right, and the same business can sensibly answer differently from one year to the next. This guide sets out the real reasons for each, the middle ground between them, and a way to decide for your own situation. It does not assume you need an adviser, and this site does not recommend any.

Step 1: understand what the work involves

An R&D claim has two halves. The technical case says which projects and activities meet the legal test for qualifying work in your country, and why.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. The financial case puts figures on the qualifying work: staff time, subcontractors, materials and the other categories your country allows. Both halves have to be documented well enough to survive a review, which can come years after the claim is paid.2Source 2A tax authority can review a claim after it has been paid, within time limits set by law: Internal Revenue Code section 6501 (United States); Finance Act 1998 Schedule 18 paragraphs 24 and 46, via HMRC Enquiry Manual EM1510 and Compliance Handbook CH51300 (United Kingdom); Taxes Consolidation Act 1997 section 959AA, via Revenue Notes for Guidance Part 41A (Ireland); Income Tax Act section 152(3.1) and (4) (Canada); Income Tax Assessment Act 1936 section 170, Income Tax Assessment Act 1997 section 355-705 and the ATO, Request an amendment to a business or super tax return (Australia); Tax Administration Act 1994 section 108, via Inland Revenue SPS 20/03 (New Zealand); Income Tax Act 1947 section 74 (Singapore). More detail on your country page.

The technical case is the part that depends on judgment. The test in each country is written in words like "systematic", "uncertainty", "advance", "experimentation" or "new knowledge", and applying those words to your own projects is the skill an adviser sells. The financial case is closer to ordinary accounting, and a finance team that keeps good records can do it with guidance. The forms, the deadlines and the process differ by country and are set out on the country pages.

• The projects you think qualify, listed
• The records you hold for each: time, costs, project notes
• The people who could write the technical case, and their time

Step 2: the real reasons to do it yourself

Preparing the claim in-house can be the right choice, and the reasons are practical rather than heroic.

The claim is small, so a fee would take a large share of it. The projects are the same as last year, when the technical case was written and tested, and the work is to update it. Your technical lead can write a clear account of what was tried and why it was hard, which is most of the technical case. Your finance team keeps time and cost records by project already. Someone on your side has prepared a claim before, or has the time to learn the guidance for your country. You would rather spend internal time than cash, and you have the time.

None of these makes an adviser unnecessary. Each makes the claim a job your own people can do, and keeps the fee in the business.

• Small claim, or a repeat claim with the same projects
• A technical lead who can write the case, and the hours to do it
• Records kept by project through the year
• Time available before the deadline

Step 3: the real reasons to get help

Getting help can be the right choice, and the reasons are equally practical.

It is your first claim, and the test, the forms and the process are new to you. The technical work is complex or spread across many projects, and nobody on your side has the time to write it up properly. The claim is large enough that a mistake would be expensive, and a second pair of eyes is worth the fee. Your records are thin and someone needs to help you build the case from what exists. A review is under way, or a past claim is in doubt, and you need someone who has handled that before. Your people's time is worth more on their own work than on a claim.

An adviser brings a method, experience of how the tax authority reads claims, and the time you do not have. What an adviser does not bring is responsibility for the claim; that stays with you, which is why seeing the whole claim before it is filed matters whoever prepared it.

• First claim, or a complex or large one
• No one with the time or the experience to write the technical case
• Thin records, or a review under way
• Internal time more valuable elsewhere

Step 4: the middle ground

The choice is not binary. Several arrangements sit between doing everything yourself and handing everything over, and one of them may fit better than either end.

You prepare the claim and pay an adviser, by the hour or for a fixed fee, to review it before filing: the technical descriptions, the figures and the forms. An adviser prepares the first claim with your team alongside, writing the technical case together, so that your team can do the next one. An adviser does the technical case and your finance team does the figures, or the reverse. You use a software tool to structure the claim and buy a technical review separately; the software-assisted claims page explains what that model does and does not include. Each of these can be priced, and the fee follows the work done rather than the size of the claim.

• A review of your own draft before filing
• A first claim done together, so the second can be done in-house
• One half of the work bought, the other done in-house

Step 5: weigh the cost honestly

The fee is only part of the cost of a claim; your own time is the other part, and so is the risk. Put the options side by side. For an adviser, the fee on your expected claim, plus extras, using the how to compare proposals guide. For in-house, the hours your technical and finance people would spend, at what those hours are worth to the business, plus the time to learn the process the first time. For each, the risk: how confident you are that the claim would survive a review, and what a reduction would cost. The true cost of a claim guide takes all four together.

On the shared example, a $250,000 claim with a 20% fee costs $50,000 in fees, and a $35,000 fixed fee costs $35,000. Illustrative figures. What the same claim costs in internal time depends entirely on your people and your records, and only you can estimate it.

• Adviser: fee at the expected claim, plus extras
• In-house: hours, at what they are worth, plus learning time
• Both: confidence the claim would survive a review

A middle path, worked through

Take the shared example: a claim the business expects to be about $250,000. Prepared entirely by an adviser on a 20% fee, the fee is $50,000 and the business's own time is the interviews and the reading. Prepared entirely in-house, the fee is nothing and the cost is the hours of a technical lead and a finance lead, plus the risk of a first attempt. Prepared in-house and reviewed by an adviser by the hour, the fee is the review time and the business keeps most of the saving while buying a second pair of eyes on the technical case. Illustrative figures. Which of the three is cheapest depends on what those hours are worth to the business and how confident it is in its own technical case; the point is that the third option exists, and that a business which asks for it is not asking for anything unusual.

Step 6: decide for this year, and keep the records either way

Make the decision for this claim, not for ever. A first claim with help can become a repeat claim done in-house; a growing business that outgrows its in-house process can bring in help for a year. Whichever you choose, do three things that serve you under either arrangement: keep records of time and project decisions as the work happens, make sure the people who did the technical work read the technical case before it is filed, and keep a copy of the claim as filed with the working papers behind it.

If you choose an adviser, the how to choose an adviser guide starts here. If you choose in-house, the country pages link to the official guidance for your country, and the reference check guide is useful in reverse: the questions you would ask an adviser are the questions to ask yourself.

• Decision made for this year, with the reasons noted
• Records kept by project as the work happens
• The technical people read the technical case before filing
• A copy of the claim as filed, with the working papers, kept

Read next

• The true cost of a claim and preparing for adviser meetings
• Software-assisted claims and hourly fees
• Case study: a second opinion before filing

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
2. A tax authority can review a claim after it has been paid, within time limits set by law: Internal Revenue Code section 6501 (United States); Finance Act 1998 Schedule 18 paragraphs 24 and 46, via HMRC Enquiry Manual EM1510 and Compliance Handbook CH51300 (United Kingdom); Taxes Consolidation Act 1997 section 959AA, via Revenue Notes for Guidance Part 41A (Ireland); Income Tax Act section 152(3.1) and (4) (Canada); Income Tax Assessment Act 1936 section 170, Income Tax Assessment Act 1997 section 355-705 and the ATO, Request an amendment to a business or super tax return (Australia); Tax Administration Act 1994 section 108, via Inland Revenue SPS 20/03 (New Zealand); Income Tax Act 1947 section 74 (Singapore). More detail on your country page.  Back
3. 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