8 top tips for a successful R&D tax claim
The government is actively pushing UK companies to claim R&D tax relief, given they have a commitment to spend 2.4% of national wealth on R&D by 2027.
However, it is believed that only 5% of qualifying companies for R&D tax relief are making claims.
Given that an average R&D claim can be worth c£47,000 to a company, Phil Hartley, tax manager at Mitchell Charlesworth, has 8 top tips for R&D tax relief for all companies to consider.
1. Don’t think it’s just for white coats
There is a lot of misconceptions within businesses that this tax relief is only available to high tech businesses and ground-breaking scientific research. This is simply not the case. Companies across various sectors have and continue to make R&D tax claims.
2. Understand what qualifies
The guidelines that govern what does and doesn’t qualify for R&D tax relief are very general and do not provide specific industry examples. The basis for the claim needs to be that something innovative has been achieved by overcoming an uncertainty in the project.
3. “This is what we do on a day to day basis”
When discussing R&D tax relief with clients many will state the above statement to me when talking about overcoming problems. Although this is the case, this won’t stop a company from claiming R&D tax relief and could form the basis for a claim.
4. Ensure you provide as much technical information as possible
With an R&D claim, the more information that you can provide to HMRC about the project, the better. To support the claim, a technical report is required to be submitted to HMRC demonstrating the company R&D activities. This isn’t for every project the company has undertaken in the year, rather a flavor of the work carried out. But the more information provided on these projects, the more likely it is that HMRC are going to accept the claim.
5. Claim the right costs
What is clear from HMRC is what costs do and don’t qualify for R&D tax relief. A big ‘no, no’ from HMRC is to claim a cost that doesn’t qualify for the relief, for example rent, and in turn can significantly delay the R&D process. It is therefore, important to understand what can be claimed for and ensure that the costs claimed are maximised.
6. Don’t just claim for current work
The claim periods for R&D tax relief are based on the Corporation Tax accounting periods. Therefore, it is possible to submit amended earlier tax returns for an R&D claim that hadn’t been considered earlier. For example, if your next year end was 31 December 2019 then initially you can look at the 2017 and 2018 year end, which could result in a tax refund.
7. Remember that losses can be exchanged for cash
It isn’t uncommon that, for tax purposes, a loss is created from the R&D claim. This loss can be carried forward and used against future profits or it can be exchanged for a 14.5% cash credit. Although this is at a lower rate than the current Corporation Tax rate, it does provide the certainty of receiving cash now that can be invested back into the company.
8. Use an expert to assist with your claim
Ensure that the claim is maximised and that all the qualifying criteria are met by using an expert in R&D claims which will help to reassure HMRC that the claim has been dealt with appropriately. This is where we can assist and provide guidance. We are happy to have a no obligation conversation to assess if you qualify for R&D tax relief.
For advice and guidance on R&D tax relief and if it is applicable to your business, please contact Phil Hartley below.
Director of Tax0161 817 6100Manchester