Though many businesses can and do prepare their own R&D tax credit claims, it can be a tricky process. Unfortunately, unless you have an in-depth knowledge of the criteria, it can be very easy to make mistakes in your claim, which could prevent you from receiving as much as you are eligible for or even getting anything at all.
Incorrect information can result in an enquiry which would delay the process by several months, resulting in a longer wait time for your business receiving the funds it needs for new projects. Many companies also tend to miss out some of their qualifying expenditure, including various consumable items, indirect activities, staff costs, intangible expenditure, grant or large company subsidised projects and much more.
Whether you are in the process of claiming, or have begun thinking about it, below we have listed some of the risks to consider. These risk can cover both the financial costs utilised or the technical justification of the R&D.
There are many factors that affect which projects can be claimed for under which scheme. This includes understanding if your business is a SME or not, and factors such as Venture Capitalist, Universities, group ownership and even partner organisations can affect this.
Once you have established whether you an SME or not then you need to understand which scheme you can utilise. If you are an SME then obviously SME for self-funded projects. What about those grant funded projects?
Well that depends on whether these are Notified State Aid (NSA) or Non-Notified State Aid (NNSA). Then you can claim under RDEC, but only for NSA funded projects, NNSA funded projects then fall under both the SME and RDEC schemes!
Another complication is where an SME is paid by a Large Company to carry out some eligible R&D activity. That can’t be claimed for can it, as you have been paid already? Yes, you can claim under the RDEC scheme. You got paid, maybe made a profit and can still claim? Yes! But wait a minute, who owns the IP. Another complicated question.
Innovation is encouraged by the government, as it’s one of the things that boost the economy. Whether you are a small or large company, the HMRC have set up the SME and RDEC tax relief schemes. Though these schemes are extremely beneficial in developing further company innovation, there is always a catch.
There are potential potholes you could fall into by ticking an incorrect box, adding the wrong expenses, or not providing the concrete information that the HMRC are searching for.
If you do choose to self-prepare your R&D claim, it’s imperative that you spend the time researching the relevant information and guidance you need. You must ensure that all of the information you are providing is full proof without any errors, as incorrect information could negatively affect or delay your claim. One of the main mistakes people make when submitting a self-prepared claim is undervaluing their R&D costs and missing out eligible expenses.
The main positive about the HMRC claims is that there are ways you can ensure your expenses do qualify under the guidelines given. This could increase your claims by thousands of pounds. You can also apply for past R&D projects, up to two years from the end of your accounting period. The negative side is that the guidelines can be difficult to understand and, if not interpreted correctly, you could lose out on a significant amount of money.
The major benefit of using a consultancy to help you with your claim is that they have years of experience, updated research and know exactly what the HMRC are looking for.
Additionally, the HMRC is aiming to provide the optimum amount in each claim, as their main goal is that everyone pays the correct amount of tax. Unfortunately, this more frequently refers to claims that are too large, versus claims that are too small. If you haven’t claimed enough, you won’t be given any pointers from the HMRC.
Though you could save money by preparing your own claim, the time and effort it will take might not be worth it. The process will be gruelling as the HMRC needs to make sure they are giving tax incentives to the right people for the right reasons. The application process is extremely long, detailed and very labour intensive. Additionally, most sections in an R&D claim cannot be filled out by just any employee.
The level of technical information requested by HMRC to justify your projects as R&D needs to be provided by a competent professional, which refers to a permanent staff member who has years of experience in the relevant field/s relating to the R&D project. That person has an in depth knowledge of the project, the uncertainties, problems and solutions, and why these could not be readily solved by a competent person.
This means that you will have a long-winded, time-consuming tax claim that can only be filled out by a qualified and experienced individual who likely has many other things to be focusing on. This could be particularly challenging for smaller companies as they are less likely to have extra time and resources to spend on filling out a tax claim.
As preparing an R&D claim is likely not in your main skill-set, it’s crucial to double and triple check all of your work. Individuals with little to no experience are at a high risk of including errors and misinformation. Every mistake that is made could delay the process of the claim.
HMRC have the right to launch an enquiry up to 12 months after your submission, which then needs to be followed up with updated information, or more detailed explanations. The enquiry process works with a deadline to supply the information, then a few weeks for HMRC to digest, which could repeat until HMRC are satisfied or not in your claim. It is recommended that you corporate fully with the enquiry as you could also receive penalties if you cannot convince them the claim is correct.
One of the major benefits of a consultancy is having someone, who is qualified, challenge the claim as HMRC would. This way, all of the kinks will be worked out before the application is even sent out. Open dialogue between your company and a professional will ensure that you have claimed the most that you can but is legitimate. Our team will help your accountant with the claims process, including the application, eligible expenditure, technical narrative, and provide tax advice that you cannot get from the HMRC.
At TBAT Innovation our goal is to support your company through the process, ensuring your R&D application will be successful under the HMRC guidelines. Our R&D advisers do the work, so you can receive the credit. Our team have years of client experience under their belt, including thousands of successful R&D claims from a range of industry sectors and a great, in-depth understanding of HMRC requirements.