How to fill out a CT600 correctly for an R&D claim
In a world where every penny counts and businesses are continually being squeezed, any tips to help swell the coffers are very well received. Whilst a very large number of UK businesses have benefitted from Research and Development (R&D) Tax Credits since their launch nearly twenty years ago, many are unfortunately still missing out. A government-backed tax incentive designed to encourage business growth and innovation, many companies still falsely believe the relief doesn’t apply to them and under claiming is still an issue. For those that do claim, the financial benefit can be huge which means an awful lot hinges on making a high quality application. As a business accountant, it’s vital to make sure that your client’s CT600 is filled out in the correct way so that their claim is successful.
Who can claim R&D Tax Credits?
Essentially, any business projects that have an element of innovation in them are likely to qualify for R&D Tax Credits. This could be developing a brand new product or service, or modifying an existing one; the main thing is that an attempt is made to solve a specific technological or scientific uncertainty (even if the project is ultimately unsuccessful).
All sorts of different companies, regardless of size, can claim R&D Tax Credits and receive the benefit either as a reduction in their Corporation Tax or as a lump sum payment. Either way, the relief is worth up to 33% of the costs that meet the eligibility criteria - well worth having.
The criteria to qualify for R&D Tax Credits is extremely broad, making it relatively easy for companies to meet the requirements. The most important part is that the costs incurred are the direct result of expenditure in developing new and/or existing technologies, processes and systems. Additionally, your client could claim for a whole host of additional R&D-related costs such as paying staff and employing subcontractors. As long as a company is UK-based and pays Corporation Tax then they could potentially boost their cash flow by thousands.
The importance of getting it right
Any mistakes or inaccuracies in an R&D tax relief claim are pretty much guaranteed to be spotted by HMRC which could trigger a costly and stressful investigation. This makes it vital to know exactly how to complete the CT600 so that HMRC receives the correct calculations.
You can find out more about R&D Tax Credits and what kinds of activities and costs they cover on our R&D Tax Credits page.
I’ve heard it’s best to file a CT600 as normal, then amend it afterwards to claim R&D Tax Credits. Is this true?
In a word, yes. When a claim is filed, both a technical and a financial section must be completed, in addition to the tax return containing a CT600 and tax computations. We’ve found that the best way to speed up a claim and hopefully avoid an HMRC enquiry is to file the accounts and tax return as normal (without the R&D claim amount) and then file an amended tax return to include the R&D claim amount. It seems a little laborious but there is method in the madness; the reason is that it makes sure the claim is dealt with by an R&D Tax Credit specialist at HMRC, rather than simply by a central office inspector. Such inspectors may not have the relevant R&D tax relief knowledge required and are likely to have questions, which can seriously slow up the claim. It can also make the process much more tedious.
To try and lend a hand, here we have outlined the necessary steps to include in an R&D claim figure, assuming that you are amending an already-filed CT600.
How to make an adjustment
Once the CT600 has been set up in the relevant software, the following steps need to be followed in order to add in the R&D Tax Credits claim.
First, before adding the R&D section, go into the existing “Trading Profits” area and enter the R&D costs there. Once the CT600 has been created, and set up to show the company’s pre-claim tax calculations, go into “Data Input” and select the “Trading Profits” section.
Now continue on with these steps:
- In the “Trading Profits” area, click on the tab for “Adjustments to trade profit” and then scroll down to “Enhanced Research & Development expenditure” and select “Edit”
- Set the correct enhanced expenditure and enhancement amounts.
The final step is to add a new section for Research and Development Tax Credit in the “Data Input” section, and to add the second tab data. Most of the sections are calculated automatically but this function can be overridden where necessary, for example if there are rounding issues.
And that’s it - the update is complete. Your client’s CT600 is now amended correctly. Don’t forget to include the Technical Narrative and the tax computations (including the calculations table to show how you worked out the total R&D figure).
We’re here to help get your client’s R&D Tax Credit claim right - first time
This article acts (hopefully) as a helpful guide in completing the CT600 to reflect R&D. However, the process itself is not particularly straightforward and can appear incredibly daunting if it’s not something you carry out regularly.
Hefty HMRC penalties and enquiries are likely if either the CT600 or an R&D tax relief claim is proved to be incorrect. Not only will this mean one very unhappy client, it will cost not only a lot of money but time as well in putting it right. So let us help you to help your client.
If you’re an accountant working with a company that has carried out innovative projects recently, it may well be eligible for R&D tax relief. If this is something that’s new to you or you wish to know more, Myriad Associates is made up of a highly experienced team of experts in this field and will be pleased to offer advice depending on your client’s requirements. Call us today on 0207 118 6045 or use our contact page. We deal in R&D tax relief day in, day out and would be pleased to assist in any way we can.