Maximizing Your R&D Tax Credit Claims UK: Tips for Businesses

Innovation drives progress, and for businesses investing in research and development (R&D), tax credits can be a game-changer. Yet, many organizations leave money on the table by not fully leveraging these incentives. For businesses at the forefront of innovation, accounting and taxation strategies can unlock significant value through R&D tax credit claims. In this blog, we’ll discuss how accounting and taxation professionals help maximize R&D tax credit claims.

What is R&D Tax Credits?

In the year 2000, the British government aimed to find a method to encourage businesses to invest in innovation. Aiming to promote economic growth and establish an innovative center in the UK, they created a tax relief system to incentivize small and medium-sized enterprises (SMEs) to engage in research and development initiatives. This system of tax relief is what we currently refer to as R&D tax credits. Over the years, R&D tax relief has grown to offer substantial financial assistance to large companies, while still aiding small and medium-sized enterprises. Today, it has enabled thousands of concepts to come to life and has offered enterprises beneficial opportunities.

Who is Eligible?

This credit may be valued at as much as 27% of the funds allocated to R&D.

To qualify for R&D tax credits, you need to:

• Be registered for UK corporation tax.
• Be operational at the moment of submission.
• Have resolved all expenses from the financial period.

For new claimants or businesses whose previous claim was over three years ago, you must inform HMRC of your intention to claim within six months after the conclusion of your accounting period. To successfully make a legitimate claim for your complete entitlement, you need certain expertise, an R&D technical report, and a comprehensive costing report.

What can be claimed?

You can claim relief on expenses that have been charged against your Profit & Loss account. Additionally, in specific situations, you can claim capitalized costs (as long as the assets acquired are categorized as Intangible Assets).

The primary categories of expenses that can be reimbursed are:

• staff costs (including gross pay, employer’s NI, reimbursed expenses and employer’s pension contributions);
• agency workers (externally provided workers);
• subcontractors/freelancers;
• software license costs;
• cloud computing costs & data licenses;
• consumable items (heat, light and power, and materials and equipment used or transformed by the R&D process);

Tips for Businesses to Maximize R&D Credits

• Stay up to date with the latest regulations

The initial major updates to the R&D Tax Relief regulations occurred in April 2023. To enhance the likelihood of a successful claim and prevent any issues with HMRC, it’s crucial to remain informed about all the most recent legislation. Effective from 1 April 2023, there were reductions in the rates of R&D tax relief, and expenses for data licensing and cloud computing were recognized as eligible R&D costs. Additionally, starting from 1 August 2023, for an R&D Tax Relief claim to be legitimate, a company has been required to submit an ‘additional information’ form electronically to HMRC. Additional modifications have since been implemented that are effective for accounting periods that start on or after 1 April 2024, which are detailed below. This also involves modifications to the regulations regarding subcontracted R&D.

• Grasp the Eligibility Requirements

Prior to submitting your R&D Tax Relief claim, it’s essential to develop a solid comprehension of the eligibility requirements.

HMRC enforces rigorous criteria to define what qualifies as eligible R&D activity. By completely grasping these criteria, you will be capable of evaluating with greater precision whether your projects meet the qualifications.

• Completely document your research and development projects

Thorough and precise documentation is essential for any successful claim. You must keep thorough documentation of your R&D projects, which encompasses project plans and schedules, technical specifications, testing methods, and information on any difficulties or uncertainties faced. Recording staff R&D activities on timesheets is quite beneficial, along with documenting their roles in each phase of the R&D project. HMRC now requires project costs to be assigned to each project, so the more thorough and detailed your documentation is, the more robust your claim will be.

• Collaborate with your Tech Team

The function of the “Competent Professional” is crucial for the validation of any R&D project. You need to be capable of recording the research conducted to show that the project aims for a general improvement in knowledge or skill within a scientific or technological domain. There could be numerous skilled individuals in a company, yet they will be among the essential personnel who must partake in elaborating on the work completed for the R&D project in the technical report required for submission to HMRC.

• Avoid missing submission deadlines.

Remain alert regarding the submission deadlines for your R&D Tax Relief claim because failing to meet these deadlines may lead to missing out on possible tax reliefs. Although you can typically file an R&D Tax Relief claim within 2 years following the conclusion of your accounting period, if you are a first-time claimant  or haven’t submitted a claim in the past 3 years, you must inform HMRC of your intent to claim within 6 months of the end of the applicable accounting period. If you fail to do so, the claim will be denied for that timeframe.

• Develop a strong technical narrative.

A thoughtfully constructed technical narrative is an essential element of a successful R&D claim, depending on the contributions of the “qualified expert” referenced above. Ensure you have established the baseline in the technology against which the advancement is assessed and explicitly outline all technical uncertainties and the actions taken to address these uncertainties in your R&D project. Clearly explain how these activities fulfill the eligibility requirements and have enhanced knowledge or skills in the scientific or technological area you are involved in.

• Review and Validate Your Claim

Carefully examine and confirm your claim prior to submission. Make certain that all information is precise, reliable, and backed by the required documentation. If you have created the claim on your own, think about seeking an independent third party to perform an external evaluation. This can deliver an impartial evaluation of the strength and adherence of your claim.

• Seek Professional Assistance

Dealing with the intricacies of an R&D Tax Relief claim can be difficult, particularly given all these changes and for businesses that lack experience in this area. Obtaining expert help from professionals who focus on R&D tax incentives can greatly improve the likelihood of success for your claim and lower the chances of facing penalties.

We have comprehensive quality assurance procedures to guarantee claims are entirely optimized and in compliance. We invite you to reach out to our team today if you want to enhance your claim.

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