What does an R&D claim look like?

Increasing claims for electric vehicle development

An electric vehicles (EV) manufacturer was using Mazars for its corporate tax compliance services. In 2018, the company launched the first zero-emissions EV of its kind. In 2020, it added another fully electric vehicle, designed, engineered and built in Britain.

It is developing the next generation of these two models, with new drive-train technologies. It’s also investigating larger, higher capacity vehicles, and applications of the tech in other sectors such as the leisure industry.

The challenge

Our compliance team asked the Mazars’ Intellectual Property Tax Team to review the computations of its R&D claims prepared by another professional advisor.

We took a ‘deeper dive’ into their development work to search for additional qualifying expenditure. The technology being developed and deployed in the EV sector is evolving at speed. Our review identified that the existing R&D tax credit advisors, appeared to have focussed solely on the obvious ‘headline’ work, while overlooking other supporting activities that had potential to qualify for R&D tax relief.

We spotted errors by previous advisors (including a missed £40m tax deduction) and we challenged the business to explore its development activities, leading us to work that might otherwise have been missed. The company liked the team’s enthusiasm – we were excited about the R&D work being done by such an iconic brand.

The results

As a result of the initial investigation work, the client opened a competitive tender process to prepare revised R&D claims for the open periods, and additional claims going forward. The client chose Mazars.

Working with the client’s finance team, we simplified the process of preparing claims, taking as much work as possible off their hands while maximising value.

We added significant IT systems development to the existing claims, as well as identifying additional work (e.g. development of technological solutions in relation to 0 KM and field failure challenges that resulted in redevelopment, rectification, and improvement work on the existing EV platform.

The company had previously claimed 56% of its development costs – we increased that to 75%. For a niche EV manufacturer in the early stages of its work with this emerging technology, investment massively outstrips revenue, so the additional circa £1.5m of “cash” benefit delivered per year by the R&D claims has been crucial.

We anticipate helping the business record the information for its claims while work is being done, avoiding the need for reconstructing detail a year later.

Claiming R&D relief for new IT systems and the creation of software

One of the UK’s largest motor dealership businesses contacted us to provide international tax advice. The business had made R&D claims in the past, but, after a negative experience with a professional services advisor, had ceased filing claims.

The company was investing considerably in its IT systems, and had expanded its IT team from 30 people to 100 in just two years. They had been working on a range of projects to develop bespoke software in-house to support their end-to-end sales process.

The challenge

We needed to make the company aware of the funding they could receive towards R&D as we found that the business had a broad range of projects that would be eligible for R&D tax relief. The criteria for claiming R&D tax relief are much broader than people expect and many ignore the innovative projects they are involved with as they don’t understand that they can claim tax relief on them.

By utilising a number of specialist R&D IT technology specialists, our client’s technical and finance staff could confidently rely on our experience to understand, advise and deliver a detailed project report to HMRC.

Through a process of education and critical challenge, the business’ understanding of R&D tax relief grew, enabling employees to discuss their projects confidently and make appropriate decisions about their qualification. We then worked with the client to collate and submit an R&D tax relief claim for a range of projects undertaken by the business.

The results

The company has made a seven-figure tax saving year-on-year. It has filed four successful R&D tax relief claims with us and has identified millions of pounds of qualifying costs, resulting in significant tax relief benefits.

We now have developed a great working relationship with the client and from a starting position of being disengaged with the R&D opportunity, they are now genuinely interested in what we can do to help them, and different areas of the business are significantly more engaged in understanding the value each function can add internally too.

The business continues to use Mazars as its specialist advisor of choice.

Tax relief on overseas R&D

A new drug development company with operations overseas was told by a professional services company that it could not claim R&D tax relief in the UK. Mazars was working on its tax compliance, and the Head of Tax asked us for a second opinion on whether it could claim R&D tax relief. We did a thorough analysis for the business and have currently saved the company in excess of £30m to date. 

Our client had invested millions of pounds in developing a drug to help people with a currently incurable illness. The disease is rare, so it was essential for the company to work globally to find patients, organise trials and find employees and scientists. The organisational structure of the company is complex. This led to the previous professional service firm stating that the company would not be able to claim R&D tax relief in the UK.

The challenge

Mazars’ specialist Pharma & Life Sciences R&D team was engaged to evaluate whether the business could claim.

In the initial period, we performed a comprehensive review of all operations and a detailed, line-by-line review of £200m of costs to find whether the business could claim R&D tax relief. 

Our detailed approach proved that the business could claim tax relief and we were able to maximise relief to its fullest extent, offering a vital tax refund for the business so it could continue to fund its R&D activities.

The results

The R&D claim was successful, resulting in a cash benefit of over £17m for the business for the initial period. Mazars continues to work with the company, providing R&D tax relief, Patent Box relief and tax compliance services, saving the client millions of pounds every year.

Reducing the risk in making R&D tax claims

A client involved in the design and manufacture of polymer products and their associated tooling was not making any R&D tax credit claims.The client was engaged in a variety of projects to design, develop and create polymer products and the associated tooling for a number of industries, but especially the medical industry.

The challenge

The finance director was convinced that the company was eligible to submit an R&D tax credit claim but there was a lot of pushback. The managing director was not willing to make a claim at the risk of an enquiry from HMRC.

Mazars had been appointed to complete the statutory accounts and corporation tax returns with the local accounts and outsourcing team. The company approached our tax team to see if we could explore submitting both current year and historical R&D tax credit claims.

After discussing the projects, it was apparent that the client was eligible. We explained that our extensive experience meant we would not submit any claim if we believed it was not robust enough, mitigating as much as possible any potential risk of enquiry.

We also explained that we could take the engagement on a contingency basis: that if no taxable benefit arose from the claim, no fee would be payable.

The results

The client has received about £100k in corporation tax benefit as a result of submitting successful R&D tax credit claims. All the directors, including the MD, now fully understand the R&D tax credit scheme.

We still work with the client on an annual basis.