Hairdressers Have Accountants, But Would You Trust An Accountant To Cut Your Hair?

July 22, 2020

I often get the good fortune to be able to tell a company that they are, in fact, able to claim for their projects when they have been previously told otherwise. This may be because their accountants or advisors had an incomplete view of the scheme or the industry in which their client operates; hairdressers have accountants, but would you trust an accountant to cut your hair?

The news can be bitter-sweet when you realise that you’ve missed out on several years worth of benefit. However, what may make this a little easier to swallow is that, the scheme operates 2 years retrospectively.

The following are the most popular misconceptions that businesses who are eligible for R&D believe when they think they don’t qualify.

1)     “We don’t develop any new products, so I don’t think we do any R&D”

The definition of R&D by the HMRC is purposefully broad.

If your company is taking a risk by attempting to solve a scientific or technological challenge, that is a good indicator that it is likely you’re conducting R&D. In other words, you don’t necessarily need to be developing a new product, process or service; you could simply be trying to improve an existing one.

For example, within the software sector a lot of companies are overcoming challenges faced with legacy systems, which may not seem like R&D at first glance. However, improving existing software and overcoming challenges by interfacing old and new systems still counts as R&D.

A similar solution may already be on the market. However, the fact that it’s not in the public domain and your developers don’t have the technical information (i.e. code) and solution available to them, experimenting to solve or overcome the challenge is also a qualifying R&D activity.

2)    “Most of our work is client-led”

A lot of companies miss out due to this common misconception.

Companies do not think they can claim on projects due to the fact the technology isn’t proprietary and they might not hold “I.P”.

This is often the case when a client comes to them with a fairly complex “fixed cost” project.  In this instance you are still able to claim back on your resources, time, expenditure, financial uncertainties, or your head-scratching and sleepless nights. This is because you still overcame the challenges faced,you took risks and also held the financial burden.

3)    “Most of our development is outsourced to a different company or even abroad”

This is a big one.

Due to simple monetary reasons outsourcing development abroad is a common occurrence in the software development sector. Why? It’s usually cheaper – makes sense. The good news is that, in line with the current legislation, these costs can be claimed under the scheme. That’s the case regardless of whether it is subcontracted to a 3rd party company or a linked enterprise, or whether it’s done locally or abroad (i.e. subsidiary or a sister company). There is a difference in how much of those costs can be claimed, depending on circumstances. Our financial consultants will be able to determine and advise you on this.

4)    “I thought it was only the developers working on the project that I can include”

Including your engineers and back-end developers in your claim is a no-brainer.

However, it is not uncommon for a qualifying R&D team to consist of individuals from different parts of the business. It may include the R&D Manager, Project Manager, Project Co-ordinators, Quality Control and Testing specialists, as well as members of the senior management team, despite not having a hands-on involvement within the development process.

5)    “We only included our one big R&D project”

A high number of companies frequently claim on their largest projects only. Subsequently, a lot of other projects and therefore expenditure is not included in their claims, missing out on the full amount they may be eligible to.

Internal systems can sometimes be more expensive than new product development, especially for businesses that aren’t traditionally R&D heavy. Often the cumulative costs of small projects outweigh the costs of a main release.

To summarise, do not dismiss your business’s potential eligibility until you have discussed it with a specialist. Finding out too late that you’ve not claimed your full entitlement tends to leave a sour taste in the mouth.

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