Top tips for submitting an R&D tax claim
R&D tax credits can be a complicated process to make a claim. They are a fantastic tax relief and funding source for UK businesses that are developing a new product or service or modifying an existing one. You need to complete the claim for your business without any help from HMRC so ensuring you have the correct advice is crucial to a successful claim.
The rules are getting tighter, so you need to be confident that your R&D claim is correct and contains all of the essential information to support your claim.
Know your sector
The guidelines covering the qualifying criteria (see below) is quite generic, therefore it is really important to include specific sector examples. Knowing your sector is key to ensuring that you submit all of the sector related information to maximise your claim. It can be tricky to understand what the correct costs are to include on a claim, using a R&D specialist will ensure your claim is maximised and all of the correct costs are submitted on your claim.
R&D tax relief is based on corporation tax accounting periods and you can claim for previous years. If your year-end is December 2022, you could also claim for 2020 and 2021. This could result in a greater claim than you may have originally realised.
Ensuring you supply enough technical information on the R&D project you are claiming for is vital to ensure success. You will need to pull together a technical report which highlights all of the R&D activities involved in the project. The more technical information provided the more chance of the claim being approved.
The guidelines that are provided by HMRC are as follows ‘Research and Development (R&D) reliefs support companies that work on innovative projects in science and technology.’ Apart from a few very specific areas that do not qualify (for example social sciences or theoretical fields such as pure maths) almost all other developments could qualify. Claims can be made by companies in any sector that seek to research or develop an advance in their field. Claims can even be made for unsuccessful projects.
What to do when you have a loss
From a tax viewpoint a loss can be created from an R&D tax claim. This loss can be carried forward and used in future tax years. Alternatively, you can exchange the amount for a 14.5% cash credit which can help with future cashflow planning.
There are two levels of R&D tax reliefs depending on the size of your business. SMEs usually qualify for the more generous SME R&D tax relief. Whilst larger companies will qualify for the RDEC (Research and Development Expenditure Credit) relief. HMRC identifies larger businesses as those with more than 500 employees and an annual turnover of over £100 million.
R&D tax credits can be a bit of a minefield, so to ensure you are maximising the amount of R&D tax credit that you can claim, it is worth discussing your claim with an expert. Our top tips highlight the key factors you need to consider but to find out more you can get in touch here.