Considering applying for the R&D Tax Incentive? We cover off on the 5 biggest questions…
Choosing an R&D Tax Consultant: Questions to Ask
With the proliferation of providers in the R&D Tax space, it can be difficult to sort the wheat from the chaff. To assist you in finding the right fit, we have compiled some questions that will assist you in this process.
How many of your clients have had to repay funds or make amended assessments?
How many reviews have your clients received?
‘What is your success rate?’ – This is a one of the most commonly asked questions when choosing an R&D Tax consultant, but is more complex than many providers let on. As the R&D Tax Incentive is a self-assessment programme, if you fill in the R&D Application Form and submit an R&D Tax Schedule you will most likely receive an R&D Tax Offset. In this framing of the question, most consultants can rightly say they have a 100% success rate.
The more important thing to understand – and the true measure of success – is, how many of their clients have received reviews and how many of their clients have had to pay back funds received, or make amendment to their claims? Some consultants may hide behind the fact that, whilst technically they have not failed a review, they have had clients make voluntary amendments before a negative finding has been handed to them. In this way they can maintain they have not failed a review, but clearly, if their clients have had to make amendments, the 100% success rate claim is misleading.
Whilst some reviews are unavoidable, a good consultant will ensure that the R&D Activities registered in the Application Form are clearly described and all eligibility criteria is addressed in an easy to understand manner, thereby lessening the chance of receiving a review in the first instance. Doing so will save time and effort in the long run.
When choosing an R&D Tax consultant it is also worth asking what their experience is over the course of their career. For example, a particular consultant may have a clean record at a relatively new company, but this may hide the fact that a place of prior employment had a lot of review / audit activity associated with it.
Are you a Registered Tax Agent?
Do you put your name on the R&D Application Form?
Only a registered tax agent is able to charge a fee to prepare and lodge a tax return, or provide other services described as ‘tax agent services’, which may include advising in relation to the R&D Tax Incentive. To be a registered tax agent they will have to register with the Tax Practitioners Board and comply with the laws and guidelines to ensure they act in a professional manner.
Some ‘R&D consultants’ may avoid this requirement by not indicating on the R&D Application Form that a company has been assisted by them in preparing the application. If this is the case, you should enquire as to why.
What are the true fees vs benefits?
Are you transparent around fees and the work required?
In general, a higher level of R&D expenditure and the more activities you have conducted means a higher fee for engaging an R&D consultant. Simple cost is not the only thing to take into account though. As they say, when choosing an R&D Tax consultant you get what you pay for. A cheaper option may not provide the same level of service – either in terms of their level of expertise or pushing a lot of the work onto you by making you fill out a bunch of forms and only doing a quick review. If this is the case, you may ask yourself ‘why pay someone at all’?
- Additionally, due to the possibility of audit or review, tailing costs may be larger for some consultants compared to others e.g. if you receive a review and engage the consultant to assist you further. Other things to consider when negotiating fees include:
- Who is actually going to do the work? Are the senior members on the engagement team actively involved with the preparation, or is the majority of the work done by junior staff?
- Whether you are in a tax paying or loss position and what your net benefit is. For example, if you are in a tax paying position you will not get the benefit of a cash refund and could therefore potentially negotiate a lower fee due to decreased benefits.
- If the R&D fees are paid as part of a package, is there transparency around the actual effort that has gone into the R&D claim?
- If you are engaged on a pure ‘success fee’ basis (e.g. a flat percentage of R&D expenditure or R&D Tax Offset), this may create a conflict of interest where a consultant takes aggressive positions in order to maximise their fee.
- On a straight success fee basis – what is the likely cost compared to the work involved. For example, a 5% of R&D expenditure fee seems reasonable, but on a $1 million claim this amounts to $50,000 which may be far higher than the effort it actually takes to prepare.
- If you are able to, negotiating a cap upfront is a good way to ensure that your consultant will not be able to run up the clock with hourly rates beyond the actual effort involved.
What other related services do you provide?
A quality R&D consultant should not just be someone you see once a year to fill out a form. A quality R&D consultant should be an innovation partner for your business. They should understand your business needs and be able to provide greater value than simply getting you a refund. When engaging a consultant, see what other innovation related programmes they have experience in, whether that be the Early Stage Innovation Company (ESIC) programme, the Export Market Development Grant (EMDG), federal grant programmes such as Accelerating Commercialisation (AC) grants and the Advanced Manufacturing Growth Fund, or other state-based programmes.
A good consultant should also have a strong referral network and be able to help you find legal assistance (IP lawyers, patent attorneys etc.), advisor networks and supporting services or companies in your industry who may be partners in your development and commercialisation journey.
Other useful support may include advice on, for example, Employee Share Schemes (ESS), accessing launchpads in external markets or setting up overseas, group structuring or preparing for funding rounds etc.