Chartered accountant Pratik Sampat warns against professionals who overcharge start-ups for their expertise in research and development tax credits.
Technology start-ups focus on their product. Rightly so. But they then must rely on professionals to help them navigate complex areas outside their expertise, such as employee benefit schemes and R&D tax credits.
Grant writers can provide a useful service in this regard. But the danger is that trust can be taken advantage of, particularly by so-called “professional grant writers” who “align themselves with start-ups” by charging a percentage of the claim. Really, all this does is allow them to overcharge for the work they do.
“Smoke and mirrors” are often deployed with the start-up chief executive who, often none the wiser, is informed that “80 per cent of a number is better than 100 per cent of nothing” leaving them with significantly less return on the risk they took in undertaking R&D work than they deserve.
Don’t get me wrong: I don’t think grant writers aren’t technically capable in the R&D tax credit process. They are generally very good at understanding the legislation and what needs to be shown to make a successful claim. What concerns me is the elevated view some of them have of their skills, and the large fees they charge start-ups for this work.
If a start-up has put forth all the hard work and risk in creating an innovative product, they deserve the upside, with writers only taking a portion equitable to their professional skillset and the time it took to successfully process the claim.
Having dealt with dozens of successful claims, I know the process is complex. But this doesn’t take away from the fact that writing a substantial narrative with your start-up’s chief technical officer, producing the supporting computation, filing the return, following up with HMRC and banking the cheque is a finite piece of work with a finite value – regardless of the size of your claim.
Grant writers frequently charge a percentage, usually somewhere between 15 and 30 per cent. Technology start-up claims can and should be completed on a pre-agreed fixed fee basis, however. This could be a fixed up-front fee with a success-based payment, but fixed is key. Here’s why.
A company with a development team of ten may have qualifying spend of £200,000, uplifted to over £400,000 and sold back to HMRC for about £50,000. The narrative for the claim should be about 20-30 sides of writing, tables and graphics. The computation itself, 2 or 3 sides of financial workings.
So, yes, it’s complex – but it is measurable. It has a value in terms of professional time, and that value is normally between £4,000 and £6,000, not the range usually charged on a £50,000 claim, which would be £7,500 to £15,000. When claims reach over £150,000 as they often do for Series A funded start-ups, this becomes a material difference.
Let’s not forget that follow-up claims for subsequent years are even easier to complete. Yet the 15 per cent to 30 per cent range that grant writers charge doesn’t drop – and behold, grant writers tie you in for several years.
The moral of the story is: grant writers are fine to use, but insist on fixed fees and no future year tie-in. It’s your upside: keep it.