08 Mar 2018

Let’s get back to basics: Understanding how the R&D Tax Credits process works!

Lorna Goodwin
Senior Consultant

R&D Tax Credits are a tax incentive from the UK Government designed to encourage companies to invest in R&D. We aim to make the process quick and simple for you, doing the hard work so you don’t have to.

Who can claim?

Any small and medium sized enterprise (SME) that carries out research and development may be able to claim back R&D tax credits from HMRC. SME’s are classed as companies that have less than 500 staff members, and are eligible if they tick one of the following boxes: revenue of less than €100 million or balance sheet assets less than €86 million. R&D tax credit rates are the equivalent of up to 33p for every £1 of qualifying expenditure.

Large companies can also claim under the Research and Development Expenditure Credit (RDEC) scheme for qualifying expenditure on R&D projects. RDEC can also be claimed by SMEs and large companies who’ve been subcontracted to do R&D work by a large company, or by companies that received grant funding for any R&D carried out. The RDEC is a tax credit for 11% of your qualifying R&D expenditure.

Loss making? You can still claim! If the company is loss making, the claim is worth up to 14.5% of the surrenderable loss.

HMRC qualify research and development as overcoming technological uncertainties or challenges; aiming at achieving a technological advance that couldn’t be easily worked out by a professional in the field. Whatever size or sector, if your company is taking a risk by attempting to resolve these uncertainties, then you may be carrying out qualifying activity. This could include creating a new process, product or service or improving on an existing one. At the outset of the project, you may not know if the work was scientifically or technologically possible, or you may not know how to achieve it in practice. If this is the case then you could be resolving uncertainties and therefore qualify for R&D tax credits.

Our Process

We have a robust process in place for R&D tax credit claims that has been proven to work well with HMRC’s requirements. We tailor our approach to our clients, aiming to take the hard work put into claiming away from you, so that you can get on with the running of your business. This typically includes:

  • An initial face to face or phone meeting to scope the claim.
  • An information gathering meeting to detail the claim for our consultant (usually at your business premises).
  • Processing of the financial claim based on the basic information we ask you to provide.
  • Production of a ‘HMRC friendly’ technical report for submission with the financial part of the claim.
  • Provision of full instructions to your accountants so they can easily submit the claim on your behalf.
  • Working with you to resolve any queries HMRC may have, at no extra cost

Our success rate for R&D Tax Claims is 100% and over the last 12 months we have successfully claimed £8.2 million for our clients.

What we’ll need from you:

In order to produce a claim to submit to HMRC, for the average claim we will need the following:

Financial data:

  • Latest full company accounts – we review your accounts to understand your tax position.
  • Labour costs for technical employees – we cannot include dividends in labour costs, but can include PAYE salary, Employers National Insurance Contributions, Employers pension contributions and any bonuses.
  • Details of materials costs – Broadly, physical materials which are consumed in the R&D (although software can sometimes be included).
  • Details of subcontractor costs – Work done for you by subcontractors can be included in some cases.
  • For grant funded projects, we will need to see the original proposal documents, all quarterly financials and any other documents submitted to the funding body.

Technical data:

  • A meeting to detail your R&D efforts during the claim period. This will usually be structured to ensure that we gather all of the information required by HMRC. We will guide you as to the number of projects and level of detail required.
  • Email liaison for any questions that arise during the report writing.
  • For you to review the report to make sure that it is technically correct.

Finally, we will send you all the information required by your accountants to submit your claim to the HMRC.

What happens next?

Once you are happy with the technical report and financial side of the claim, we will pass on instructions to your accountants through you, to submit the claim. Once submitted, HMRC normally takes around six weeks to process a claim. Payment variants:

  • If you are claiming for a previous year, a payment is made directly to you, in the form of cash paid directly into your nominated bank account or a cheque by post.
  • If the claim is for the current tax year and your company is profitable, your overall Corporation Tax bill will be reduced or cancelled out and a payment for the outstanding credit made to you.
  • If you are loss making, you will receive a cash credit in exchange for surrendering the enhanced losses to HMRC.

Get in touch with our team today to discuss how we can assist your business with claiming R&D Tax Credits.

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