Identifying eligible clients and projects: what counts as R&D?
The R&D tax relief scheme enables your clients to reduce their corporation tax liability, get a refund of tax that has already been paid, or, in the case of loss-making companies, receive a tax credit by demonstrating that they have incurred costs on qualifying R&D work.
On the face of it, this seems pretty straightforward. However, HMRC’s definition of R&D is very narrow, and almost certainly stricter than that of your client.
Essentially, HMRC are looking for R&D that seeks to make a worldwide advance in some area of science or technology. It doesn't have to be earth-shattering, but it does have to advance science or technology, and by extension the industry in some way. The other requirements are that that work involves technical ‘uncertainty’ i.e. it’s not straightforward and requires some iterative work and testing; and the work is carried out by staff who have either training or experience in the area of science or technology being advanced.
Given these narrow criteria, you’d be forgiven for thinking that only companies with staff in white coats and goggles would be eligible, but that’s not the case! Any company that is doing work that fulfils the criteria can make a claim, from food producers to engineers and software developers. WhisperClaims users, for example, are making claims for large construction companies developing new cladding systems; vegan food producers trying to make fake meat out of mushrooms; dentistry companies developing new denture production systems; and everything in between!
Although there are two schemes for claiming R&D tax relief - the SME scheme and RDEC for large companies - the definition of eligible R&D work is the same for both. The key differences between the schemes are in which costs are allowable and the amount of benefit a company gets from its claim.
As you’ll see in our complementary guide (see the link to this below), claiming for R&D tax relief is done through a company’s CT600 form. This means that a claim can be made any time for two years after a company’s financial year end. Once the two year deadline is reached, no more amendments can be made to the CT600, and therefore no further claims for R&D tax relief can be made.
Tax computations and tax returns can be complex, so we’ve pulled together a summary of the additional steps required to claim for R&D tax relief that will help you see how the two processes can knit together.
Download 'The accountant's game changing guide to preparing R&D tax claims in-house', ideal for accountants and consultants looking to get to grips with the fundamentals of the R&D tax relief scheme and start generating revenue from R&D tax consultancy by developing an in-house service.
About the authors
Richard Edwards, Jen Badger and Mike Dean met when working at a successful R&D tax consultancy, where they noticed key trends in the R&D tax market. All three founders felt that automating the process of preparing R&D tax claims would be hugely beneficial to the industry, enabling smaller companies to access support and advisors, like you, to expand their offering.
And so our idea was born – a cloud based platform, easy to use, with all the help and guidance that advisors need to prepare R&D tax claims for their clients. Now an award-winning product, WhisperClaims is used by over 200 accountants across the UK to prepare comprehensive, detailed reports suitable for submission to HMRC at the touch of a button.
We’ve won ‘Best Use of Innovation’ at the UK Business Technology Awards 2018 and ‘Emerging FinTech Company of the Year’ at the Business Insider Scottish Accountancy & Fintech Awards 2019.
In 2020 we’re also up for an ‘Accounting Tech Award’ at the UK Fintech Awards and ‘Innovation in the UK SME section’ at the MoneyFacts Awards.
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WhisperClaims is a white-labelled, fully automated and fixed cost cloud based application for processing R&D tax claims. Our customers include Accountants and Specialist Consultants.
The app allows HMRC compliant R&D tax reports to be completed in under an hour; that includes all of the cost capture, cost treatment and production...