Clearing up client misunderstandings

There are a couple of reasons it can be difficult to speak to clients about R&D. The first is that clients always tend to have their own ideas about what constitutes “Research and Development.” Those ideas don’t often align with HMRC’s definition.

For example, clients often think that searching for information online counts as Research. It might do under a general definition, but not under HMRC’s definition of R&D for tax purposes.

HMRC take the view that this type of ‘research’ is the company getting up to speed on what technology already exists. At this stage they are trying to establish the industry baseline, before they try to push that baseline forward. HMRC would say that for tax purposes, R&D hasn’t started yet.

So your first challenge is helping clients understand that their definition of R&D isn’t necessarily the same as HMRC’s.

Tackling HMRC’s jargon in the R&D tax relief guidance

The second reason that it can be hard to discuss R&D with clients is that HMRC’s definition is very abstract. It’s designed to apply in any sector, which means you need to translate it into more specific terms for your clients. The key parts are that the company

  • must be ‘trying to make a technological advance’ and
  • must try to overcome ‘technological uncertainties’ in the process.

R&D tax advisors may know exactly what that means, but it often results in blank looks from clients. It’s hugely different from what they spend their time thinking about, so they need more explanation.

This means your second challenge is to help clients understand how HMRC’s definition of R&D applies to them. This is harder if your client has been speaking to unscrupulous R&D consultants, who are too optimistic about what qualifies. Trying to bring your client back to earth can be tricky when they’ve been given such high hopes for their claim.

So how then can you best educate clients about their eligibility?

Step 1 – Prepare your explanation in advance of the client meeting

In enquiries HMRC often ask if you showed your client the guidance, so it’s a wise idea to do that first. But it’s not the easiest document to digest. In fact, it’s a wall of text that’s pretty off-putting for most clients.

Once you’ve sent the client the link, you need to follow up with an explanation that they can understand, along with a resource like a checklist or diagram, or using hypothetical examples or case studies.

To prepare, take a look at HMRC’s guidance that defines R&D and their other jargon (CIRD81900). Think about what you can create or adapt that would make things simpler for your clients to grasp.

The resources, checklists or diagrams you create don’t need to be complex; in fact, the simpler, the better. The more you can simplify the complexity of HMRC’s guidance, the smarter your client is going to think you are. They need you to give them clarity instead of baffling them.

It’s worth spending a bit of time on this initially. Once you’ve done it for one client, you can use the same materials with all of them.

Step 2 – Use these resources to explain the eligibility criteria clearly and simply

With the preparation done, you’re set for a productive conversation with your client. The three stages of the meeting are quite consistent.

First you show the client that HMRC’s definition of R&D is specific and may be different to what they thought.

Then you help your client understand how HMRC’s definition applies to their projects and activities. You want to achieve the ‘lightbulb’ moment, where the client suddenly grins and says, ‘Oh right, now I get this!’

Once you get that reaction, the client will then have an instinct about whether they are eligible, or not. Either way, they’ll want to throw lots of examples at you to test whether their understanding is correct.

Step 3 – Get clarity by repeating back to the client what they’ve told you

What you need from the meeting is clarity. Is the client likely to have a valid claim for R&D tax relief and is it worth both sides investing more time in the process?

To make sure this happens, you need to respond to what your client is saying, as well as taking notes. If you sit there scribbling, they are likely to ramble, or talk about the wrong things. Plus you aren’t giving any guidance, so they may assume that you’ll claim for everything they’ve mentioned.

Instead, it’s better to use their own words to clarify the advance. For example, “You’ve told me that this device was more effective than others that were on the market at the time. Is that correct?”

Repeating the information back to them makes it clear what you think the advance is. And it gives them a chance to correct you if you’ve picked up the wrong end of the wrong stick.

Your goal is to leave the meeting with a clear understanding about types of advances your client has made, so you can progress the claim. Or if they haven’t made any advances and the client isn’t eligible, you want to leave them crystal clear on why not.

Helpful resources

It’s so easy to miss things when you’re having this nuanced, sometimes lengthy, conversation with a client. To help you avoid this, we’ve created an R&D eligibility checklist that you can print out and use in every technical meeting. It will help you

  • Structure your conversations with potential R&D clients
  • Understand which parts of your clients’ projects qualify for R&D tax relief
  • Explain to your clients why work is or isn’t eligible.

It’s short and simple, and easy to print, so you can take the list into client meetings with you as a handy reference.

Using it consistently will make you much more confident when talking to clients about their eligibility. This in turn will result in happier clients and more accurate claims.

Download the R&D Eligibility Checklist

If you need more detailed support, for example to help you understand the guidance yourself, and create a simple explanation for your client, we have a course on this subject in our membership.

Learn more about it here: Establishing Eligibility – How to discuss R&D with clients