Since 2011, the research and development tax credit has become the main tax incentive the ATO offers innovative companies in Australia, replacing the R&D tax concession. The ATO does a world leading job in defining the eligibility criteria and administering the program, however, the significant complexity and need for compliance mean that many companies can’t manage the application process internally and rely on outside expertise.
There are hundreds of companies competing for the chance to write and submit your R&D tax incenive claim. Their value proposition: free money. Ok, somewhat free money. R&D providers will charge anything from a small fixed fee to 30% of your claim value for something that is essentially a fancy essay about your technology and some spreadsheets.
This begs the question: Are they worth it?
Is getting an R&D advisor worth it?
The truth is: you can file a bare-bones, home-made claim and have it go through without any issues. Having your claim enquired or adjusted is a question of probability and ATO manpower. Audit rates range from 5% to 20% (depending on who you ask), and just like the fact that not everybody will get a personal tax audit, not everyone will get an R&D enquiry if their claim is weak or poorly supported.
Call it a dirty secret or an obvious truth, but you might be able to calculate your tax credit on the back of a napkin, send it in and have it paid out at the same time as all the other technical works of art that are sent to the ATO.
Emphasis on might.
Most companies cannot base their cash flow (including payroll, office rent, and the kitchen fruit bowl) on “might”. A claim that has not been vetted by someone with a lot of experience could also end up in an audit. An R&D audit is the kind of burden you need to have experienced to understand, and it involves a kafkaesque series of calls, emails, clarifications, and a good few months of bureaucratic back and forth. Add to that the fact that your claim could be significantly reduced, totally rejected, or simply just held up for 6-12months, and you see why winging it could be bad advice here.
Working with an experienced R&D consultant who offers audit defense as part of their package acts as double insurance: against the event of an audit, and, if the audit does occur, against the need to deal with it yourself (probably badly, as “bickering on the phone to the ATO” is presumably not your most endorsed skill on LinkedIn).
Chat to one of our specialists to choose the best R&D advisor
Our team has been working with R&D advisors for years, so we know the market better than anyone. If you want a no-obligation recommendation for an advisor that fits your business, simply contact us.
Should I get an R&D consultant when my claim size increases?
It seems a cruel joke that most R&D providers have a percentage success fee. What is a $2,000 fee on a $10,000 claim quickly escalates to $40,000 when you’re claiming $200,000. It sounds ludicrous to pay this much for paperwork. Yet, it is exactly when the stakes are higher that having an advisor matters most (also, little tip – anything in life can and should be negotiated!)
It’s only natural for the Australian government to be careful with its allocation of your hard-earned tax money, and so should you. Having a qualified advisor compile, file and potentially defend your claim can mean the difference between having 6 months of runway or 6 months of anguish explaining to an auditor how you’ve had to formulate hypotheses while you were building your shaving simulator app.
What to consider when you’re looking to file your R&D claim
Should you self-file?
- Do I have R&D experience in the team already or a CPA who can navigate the program? If not, do I really want to learn it all myself?
- If I learn it myself, is the opportunity cost of diverting resources away from core activities worth the money saved?
- Am I sure that I can successfully identify all the eligible projects that I am doing and attribute costs correctly, so I can recover the correct amount? Or, will I miss something, potentially leaving funds on the table or over-claiming?
- If I am audited, do I want to navigate that by myself or with someone who’s done it multiple times?
What the above questions are really getting at is this: Is the money “saved” by self-filing worth the effort?
The ATO does a great job of supporting new companies who want to self-file, so the resources are there if this is the path that you want to choose.
How to choose an R&D advisor
What you shoud ask yourself:
- What level of service do I want, and at what cost? Offerings range from full service (they do everything) to rubber stamping your technical writing and accounts.
- Am I willing to take on a large portion of the work internally?
- Does the R&D consultant have experience in my sector?
- Do they understand the technology I am building and the industry in general?
- How engaged is my consultant?
- Will I speak to them throughout the year to track my projects and make sure we are claiming the available amount? Or, is it just a one-time thing at the end of the fiscal year?
- Do I want to work with a boutique, mid-sized, or Big 4 firms?
- Am I treating R&D like a revenue-generating business unit? The larger your claim is, the more important this becomes, and expertise is required. Costs may increase, but so does the importance of the work.
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The final word
The choice of getting or not getting an R&D advisor is a bit like investing. Some people want to do it themselves, they enjoy the research, the rush, the process, and ultimately the risk of managing their own portfolio. Others are happy to hand over a management fee to and experienced professional to lower risk and free themselves up to focus on other more valuable things.
It’s all about risk preference. You can DIY, of course, and may the odds be ever in your favor, but if you’d like predictability, do go for a good advisor. Also, if you’d like your money early through R&D Finance, a skilled advisor is highly valued.
Hope this helps you on your journey towards getting the most out of your R&D tax credit. Do let us know in the comments what your experience has been in the world of R&D.
