Myth

A bigger claim is a better claim

A larger claim is not a better claim. The claim that survives a review is the one that counts, and a claim stretched to include doubtful work can cost more than it returns.

The myth

The adviser who finds the most qualifying work is the best adviser. A bigger claim means a bigger benefit, so the aim is to include as much as possible.

What actually happens

A claim is a statement to the tax authority that certain work meets a legal test. Every project and every cost in it is a claim you are making, in your name. Work that does not meet the test does not become qualifying because it is in the form. It becomes a reason to reduce the claim on review, usually with interest and sometimes a penalty on the amount that falls away.1

A fee tied to the size of the claim can pull towards including more. That is not an accusation. It is how incentives work, and a careful adviser on a percentage fee will say so and set limits. The pull is strongest when no one on your side has read the technical case, because then the only judgment in the claim is the adviser's.

A larger claim also has more in it to defend. The benefit of a stretched claim is uncertain. The cost of defending it is not.

A good claim is the full amount of the work that qualifies, documented so that it holds. Smaller than it could be is a problem. Larger than it should be is a bigger one.

Where the belief comes from

A claim is easy to describe by the size of its benefit, and a first conversation about a claim can start there. That framing makes the claim sound like a prize, with the adviser as the person who finds the most of it. It leaves out the other half: that every amount in the claim has to be supported if the tax authority asks, and that the business is the one who has to support it.

A worked example

On the shared example, a business has a clear $200,000 of qualifying work and a further $50,000 project that may or may not meet the test. An adviser on a 20% fee of the amount claimed earns $10,000 more by including it. If the claim is paid and never reviewed, the business gains $50,000. If it is reviewed and the project falls away, the business repays $50,000 with interest where it applies, has paid $10,000 in fee on it, and has spent its own time defending it. Whether the project should be included depends on the technical case, not on the arithmetic. The arithmetic only shows why the question needs an answer from someone who understands the work. Illustrative figures.

What to do instead

Ask the adviser how they decide what qualifies and what does not. An adviser who can tell you what they left out, and why, is applying the test. Ask to see the full claim and its workings before it is filed, and have the people who did the work read the technical descriptions.

If the fee is a percentage, ask whether it applies to the amount claimed or the amount received, and whether it comes down if the claim is reduced. A fee that follows the result gives the adviser a reason to keep the claim to what will hold.

Sources

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

Rules and common practice differ between countries. See the page for your country.

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