Is your R&D Tax Credits claim maximised? Five top tips from a leading industry professional
In my experience many businesses are still not aware of the R&D Tax Credits incentive and many others believe that they don’t qualify. It is not uncommon for a trusted accountant to tell a business that they aren’t eligible, when in fact they are. On top of this I find that many businesses that do claim R&D Tax Credits are not claiming their full entitlement. (Let’s face it, HMRC are not going to tell you that your claim is understated.) Before I share with you five top tips to maximise your R&D Tax Credits claim, here is a little bit of background about this very generous incentive.
About R&D Tax Credits
The R&D Tax Credits scheme has provided £20bn of R&D funding support to UK businesses. HMRC is responsible for administering and processing the R&D Tax Credits incentive (also known as R&D Tax Relief) through the Corporation Tax system. R&D Tax Credits rates have increased significantly since they were launched and today UK business can obtain a 25% rebate on their R&D expenditure, and this can rise to 33% for loss-making businesses. Eligible expenditure includes staff wages, agency labour, contractor costs, software licenses and consumables. To qualify, you need to demonstrate that your project is making an advancement in science or technology and that it addresses a number of technical issues and uncertainties that a competent professional would consider challenging.
Five top tips to ensure your R&D Tax Credits claim is maximised
Know what sort of projects qualify for R&D Tax Credits
Many businesses don’t realise that they are undertaking eligible qualifying activities. It is not uncommon for their accountants to forget to tell them about R&D Tax Credits or even to tell them that they don’t qualify. On many occasions I have found that those accountants are wrong. If your technical lead (the R&D manager, lead engineer, or lead developer) is struggling to overcome the technical challenges of your project – if they are scratching their head wondering how to proceed, or losing sleep worrying about the technical uncertainties they face – your project will almost certainly qualify for R&D Tax Credits.
The qualification bar is lower than what you think
It is not uncommon for businesses that do submit R&D Tax credits claims to do so for only some of their qualifying projects. As well as being able to claim for projects that are obviously breaking new ground, you can also claim R&D Tax Credits for projects aimed at making an appreciable improvement to existing technologies, and this may include product, process, and software technology enhancements. For example, it is possible to claim for designing and developing cost-effective and innovative operational processes, integrating new materials to improve product improvement and manufacturing and tool to extend the functionality of application software programs or of an operating system. We provide a more comprehensive list of the types of manufacturing and software projects that are eligible on our website at R&D Tax Credits (see the FAQs section).
Remember to claim for the indirect staff that are involved in R&D projects
An R&D team generally consists of many individuals from different parts of the business. Your R&D project team may include the R&D Manager, a Lead Developer, Engineers, Project Co-ordinators, CAD Engineers, Quality Control and Testing specialists, Cost Accountants, Admin Support staff, as well as members of the Senior Management team. You can claim for each of these roles in proportion to the amount of time they spend on your project.
Ensure you claim for all eligible costs
It is amazing how many R&D Tax Relief claims don’t include all the eligible costs. For example, it is not uncommon for claims to miss off freelance contractors that are actively involved with the project. You can also claim for overseas contractors and this includes subsidiary costs, as long as these costs are included in the claimant’s P&L account. In fact, subsidiary costs are not restricted by the 65% unconnected contractor rule and it may be possible to claim 100% of the costs under a ‘look through test’.
And finally follow a team approach when preparing your R&D Tax Credit claim
I always recommend that you take a team approach when you prepare your R&D Tax Claim. This helps ensure that you capture all eligible projects, costs, and people that have been involved in qualifying R&D activities. In my opinion, the best person to lead the R&D tax claim process is your technical lead, ideally the Technical Director or the CTO, rather than a member of the finance team. This is because the first and most important step in making your claim is identifying all your eligible projects. This can ensure that you are claiming your full entitlement under the very generous R&D Tax Credits incentive.