Expert tips to maximising your R&D tax credit claim
If you want to get the most benefit for your client’s business through R&D tax credits, you have to maximise your claim. This will involve doing a lot of research and sometimes it’s difficult to even know where to start when preparing your application. It’s worth it to put in the time and effort though, as without it your client could miss out on thousands worth of savings. This financial injection has proven to be vital for many small to medium sized businesses, particularly during the Covid-19 pandemic.
This blog post is here to give you a taste of the sort of expert tips that’ll give your client the most bang for their buck when applying for R&D tax credits.
1. Figure out your company size
Although almost any company can apply for R&D tax credits, HMRC offers tax credit incentives for firms that are either SMEs or large companies. You should familiarise yourself with the following definition HMRC uses to calculate the size of companies:
- SMEs: Less than 500 employees, a turnover of less than €100 million and a balance sheet worth below €86 million.
- Large companies: More than 500 employees, a turnover of more than €100 million and a balance sheet worth over €86 million.
SMEs qualify for the SME scheme while large companies qualify for the Research and Development Expenditure Credit scheme(RDEC).
The SME scheme is far more generous than the RDEC, offering a much higher percentage of claimable R&D expenditure. As such, your client will be able claim more on their R&D tax credits as a small or medium size company.
Read more about these schemes on our previous blog here.
2. Know what you can and can’t claim
Deciding what costs your client will claim is going to determine the scale of the tax savings they will benefit from. The more total costs your client claims, the more valuable their R&D tax credit will become. However, if any of the costs claimed turn out to be incorrect then they could be faced with an HMRC investigation. This is why knowing the extent of the costs your client can claim is so important.
Some things to note:
- Always work within your client’s company’s financial year, not the tax year of HMRC. Any expenses outside the relevant financial year, qualifying or not, are not eligible to claim.
- You cannot list your client’s directors as subcontractors when calculating R&D expenditure. This means you also can’t claim directors’ dividends as qualifying R&D expenditure. HMRC cross-checks companies’ listed directors so make sure this is done right.
You can find a comprehensive list of qualifying R&D costs here.
3. Receiving grant funding won’t always compromise a claim
More businesses than ever have received some form of financial aid due to the damage done by the Covid-19 pandemic. It’s likely your client falls into this category and they’re resultantly skeptical about whether they can still claim R&D tax credits. This doesn’t mean their projects are unclaimable though.
If your client’s grant falls under the category of notified state aid then they unfortunately will not be able to claim R&D tax credits under the SME. They are still open to pursue a claim through the RDEC though. Non-notified state aid will affect the eligibility of your client’s projects depending on how much funding was contributed towards them.
Read about how Covid-19 funding will affect R&D tax credit claims here.
4. Utilise your losses
Just because your client’s company is unprofitable doesn’t mean they should be discouraged from applying for R&D tax credit. Utilising the ‘surrendering a loss’ mechanism allows unprofitable companies to obtain a short term cash injection from HMRC.
In this way, the total loss is exchanged for cash credits at 14.5% of the original value.
If your client expects to be profitable in the next year we wouldn’t advise surrendering their losses. This is because they can be used to offset the tax on their profits in future.
If your client is concerned about this looking bad on their books don’t worry, enhancing their loss through the tax incentive schemes won’t be reflected in the accounts.
5. Spend time on writing a great technical narrative
Outlining your client’s R&D projects, the work they’re doing and how it fits within HMRC’s definition of R&D, is really the meat and potatoes of any R&D tax credit application. Here are some do’s:
Keep it short and concise – this helps your client’s application to be as easy to digest as possible.
- Don’t use language unique to your field – you want HMRC to understand the problem your client has solved, as well as the lengths they’ve gone to to solve it. Using jargon can create confusion.
- Write from a technical point of view – prove that your client has overcome a technical uncertainty or made advances in technology. That’s what HMRC are looking for.
6. Check your numbers
This can be a time consuming process but sitting down and checking your figures match on every part of your client’s application is a must. This includes their profits and loss, tax calculations, along with the contents of their CT600. If all your client’s costs are consistent with each other it helps HMRC to process the claim more easily.
Put the tips into practice with made.simplr
There’s a lot of nuance regarding some areas of an R&D tax credit application. That’s why getting expert help and advice when completing an application for R&D tax credit is guaranteed to ensure a maximised claim. At made.simplr our online R&D portal software allows you to input your client’s data, clearly laying out where and how they can maximise their claim.
In addition, our experts are on hand to answer any questions that come up during the process. Making an R&D tax credit claim also presents many opportunities to make mistakes. Our experts remove any risk of this while garnering the maximum reward for your client. It’s our mission to ensure your client benefits from R&D tax credits to the highest degree they can. Plus, our all-in-one R&D tax software offers a great solution to scaling your R&D practises.
Contact us for a demo today.
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