If you’re a business that performs research and development, or R&D, you could be eligible to make an R&D Tax Claim. Many businesses could be missing out on receiving incredibly helpful financial benefits for their company, so make sure that you aren’t one of them.
In order for UK businesses to continue conducting R&D to create new products, processes, and services, in 2000 the HMRC began providing two schemes; The SME Scheme and the RDEC Scheme. Both of these financial schemes aim to give UK-registered businesses either a Corporation Tax reduction or a cash repayment for a proportion of their R&D expenditure. There are four categories of eligible expenditure that you could claim for, including costs for staff, materials, software, and subcontracted work.
You could be eligible for a Tax Claim if you fit into one of the below schemes:
SME Scheme – Your company has less than 500 full-time employees and less than €100 million turnover or gross assets over €86.
RDEC Scheme – Your company has over 500 full-time employees and more than €100 million turnover or gross assets over €86.
Here are six questions to help guide you through filing your tax claim.
The very first step to making a R&D tax claim is figuring out which projects you will claim for. To make things simple for HMRC, it’s best if you break up your development work into separate projects, if possible. Each project must fit under one of the HMRC schemes and must only consist of the eligible expenses/activities.
As mentioned above, R&D Tax Relief is made up of two government schemes. The SME Scheme caters to smaller businesses, allowing them to claim up to 33% of their R&D expenditure. For larger companies, the RDEC Scheme is provided for businesses to claim back up to 13% of their R&D expenditure.
What scheme your business falls under depends not only on the size of the company but also whether you are linked, grouped, or partnered with any other businesses.
After finalising what scheme your business fits into, the next step is to organise your finances. You will have to add up all eligible costs and expenditure in order to work out the size of the claim you will be making.
As part of the SME scheme, once you’ve calculated all of your qualifying expenditure, you will then need to follow a process called ‘enhancement’. This means increasing your total amount by 130%, which will then provide you with an uplifted expenditure. This final enhanced expenditure is the final figure that you will need to claim for. Sadly, the RDEC Scheme does not offer any enhancements.
A technical narrative is a written document between 2 and 5 A4 pages long, which refers to the work that was undertaken and any extra challenges you faced along the way. The text should also cover however many projects make up at least 50% of your R&D expenditure.
For more challenging projects, there is likely to be a little more uncertainty regarding your claim. Even if a project has failed, it is still worth making a tax claim and seeing how much of the costs you can get back.
Though it can be tricky to figure out exactly how to write the technical narrative, this document is designed to give you the chance to explain your projects. Be descriptive with what the projects were, the process/es, and your reasoning for expenditure.
The technical narrative is not mandatory, but it supplies the HMRC with more helpful information, which could prevent them from sending countless extra inquiries, delaying the application by several months, or rejecting it all together.
Once you have gathered all of the technical information, it’s time to fill out the CT600 form. You will be required to fill in your financial calculations into the correct categories, which will vary depending on what scheme you’re applying for and whether you are claiming tax relief or payable tax credit. After spending so much time on the calculations and technical information, the last thing you need is to tick the incorrect box on this form.
If you end up making a mistake on the form, it could result in you missing out on £1000’s in R&D Tax Relief. Some of the common mistakes we see include entering your numbers into the wrong box, confusing Uplifted R&D for Enhanced R&D, or wrongly utilising the R&D figures in the tax computation, resulting in you missing out on the largest benefit you can get.
Now that the above questions have been answered, you should be almost ready to send out your application. The next step requires you to combine all of the above documents into one final document, ready to be sent off. This includes the financial calculations, technical narrative, and your CT600 form. Once you have your final document, it’s time to send it off to HMRC.
Though you can file your own R&D claim, it requires a great deal of extra research, knowledge, and many hours of reading. By using a company like TBAT, we will help make the process as simple as possible, maximise the value of the claim and minimise the risk of an investigation from HMRC. All of your documents will be checked and approved by an experienced TBAT Consultant and we’ll work closely with your Accountant to submit your claim. . To find out more, contact our team today.
If you’re still unsure about whether you should look into making an R&D Tax claim, ask yourself these 3 questions:
The likelihood is you answered yes to all of the above questions. Begin your R&D Tax Credit claim today with TBAT by using our R&D Tax Credit Calculator.
Within R&D tax credit frameworks, there exist varying degrees of guidance, each with distinct purposes. These are ‘Meaning of Research & Development for Tax Purposes: guidelines’, 'CIRD Manual (Corporate Intangibles Research and Development)' and ‘Guidelines for Compliance’
There were some important announcements made regarding the future of the R&D tax credits schemes both in structure, operation and who can benefit as well as wider investment in R&D in specific sectors.
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