5 Steps To Deliver An Optimised R&D Tax Credit Claim
Claiming Research and Development (R&D) Tax Relief is a two-part challenge for most small and medium-sized enterprises.
The first part of the challenge is to show HMRC the details of what you have spent on R&D activities, and how that spending conforms to the rules and guidelines that have been published.
The second and more difficult part of the challenge is to show HMRC that the work your company has been doing meets all the criteria for R&D. HMRC’s inspectors don’t have time to study and understand the technology used in your industry, so they need to be told what you’ve done and why it is significant. They need to be told about your projects accurately and precisely, in language that is clear and easy to follow.
To help businesses deliver an optimised R&D tax credits claim, we designed the following five-step guide.
Step 1 – The Brainstorming Session
Invite your key technical experts, finance and a representative from an R&D tax specialist to a brainstorming session that focuses on identifying all eligible development projects undertaken in the accounting period(s) for which you are claiming. For each project, you will need to establish the start and finish date (if it has finished!)
Step 2 – The Technical Write-Up
HMRC highly recommends that you include a technical briefing for your major projects when filing an R&D tax relief claim. We suggest that technical briefings are completed to cover approximately 60% of your development costs. Therefore, it makes sense to prepare a technical briefing for projects that are high on the development time front. It is important that the technical briefing focuses on highlighting the eligible activities within the Department of Business, Innovation and Skills (BIS) guidelines. We strongly recommend that the technical briefing is drafted by an R&D tax relief expert to ensure that the claim meets the qualification criteria.
Step 3 – The Costing Schedule
The R&D tax credit claim will need to be supported by a costing schedule that allocates eligible costs to each qualifying development project. Again, the use of specialist R&D tax relief experts will ensure that this costing schedule is correctly prepared and that your claim is optimised. You can claim the following ‘revenue’ expenditure which is actively and directly related to the eligible development projects: Cost of employing staff; Paying a staff provider (agency) for staff provided to the Company; Software costs directly relating to eligible development projects; Sub-contract costs (65% of invoiced value); Apportionment of power, water and fuel as well as certain consumable costs.
Step 4 – Submitting Your Claim
A full R&D tax relief claim will need to be prepared including technical briefings and costing schedules. You will need to update the company tax return (CT600) and tax computations, something which can be completed by your R&D tax specialist or accountants. If you are making a retrospective claim, then the company tax return (CT600) and tax computations will need to be amended and resubmitted together with the R&D tax relief claim. The R&D tax relief claim, together with the company tax return, tax computations and the statutory accounts will be reviewed by one of the 7 regional HMRC R&D Tax Units.
Step 5 – HMRC: Reviewing and Processing Your Claim
The relevant HMRC R&D Tax Unit will process your R&D tax relief claim by reviewing your technical briefings, checking your costing schedule and company tax return/tax computations. If the company is due a corporation tax refund or a credit payable, then the payment is normally made within 1 to 2 weeks once the claim has been processed. If HMRC decides to make an enquiry into the R&D tax relief claim, this is normally communicated within 30 days of receiving the claim. However, HMRC does have up to 12 months to make to make an enquiry into a company tax return.
In this article, we have tried to explain the basic principles of making an optimised claim for R&D tax relief. It does take some time to put a claim together, and it might be a good idea to ask an expert to help you get your claim right the first time.