Research and development (R&D) tax credits can provide significant financial benefits for companies engaged in innovative activities. However, determining whether your company is eligible for these tax incentives requires careful evaluation and understanding of the criteria established by HMRC. In this article, we’ll outline the steps to assess your eligibility for R&D tax credits and help you navigate the process effectively.
Is the Company eligible:
To be eligible for the R&D incentive reliefs the company must be liable for Corporation Tax. This includes company structures such as Limited, PLC and CIC (Community Interest Company). If you are a sole trader, a charity, or an LLP (Limited Liability Partnership), these structures do not pay Corporation Tax and therefore cannot claim R&D tax credits. The company needs to be a going concern and trading or seeking to trade, around the R&D carried out. Depending on how the company funded the R&D (self-funded, investment, grants or contracts) and how big the company is will depend on whether you can claim through the SME (Small and Medium-sized Enterprise) or RDEC (Research and Development Expenditure Credit) schemes.
Familiarise Yourself with R&D Tax Credit Criteria:
Start by gaining a solid understanding of the R&D tax credit program. The rules and guidelines can be complex so consult official government resources, HMRC websites, or seek advice from a tax professional who specialises in R&D tax incentives.
Identify Qualifying Activities:
Review your company’s activities to determine if they meet the definition of R&D as defined by the tax authorities. R&D typically involves endeavours aimed at solving uncertainties for scientific or technological advancements, the development of new products, development of software or product/process improvements. This is not just laboratory research, but activities carried out by technicians, engineers, scientists and developers.
Assess Technical Uncertainty:
R&D activities involve overcoming technical challenges or uncertainties. Evaluate whether your company’s projects involve technological uncertainties that necessitate systematic investigation or experimentation. Examples include exploring new technologies, developing prototypes, conducting feasibility studies, or solving technical problems, that lead to an advance in science or technology.
Document Your R&D Activities:
Maintaining detailed records and documentation is important when substantiating your R&D tax credit claims. Keep track of employee timesheets, project plans, technical specifications, research notes, test results, and any other relevant information you may need. Robust documentation will help support your claim and demonstrate the legitimacy of your R&D activities.
Evaluate Eligible Expenditures:
Determine the costs that can be claimed as eligible expenditure for R&D tax credits. These may include direct R&D labour costs, subcontractor expenses, materials and supplies, R&D-related software, and certain indirect costs.
Quantify Eligible Expenses:
Accurately calculate the eligible expenses incurred during your R&D activities. This involves apportioning costs that are directly attributable to R&D projects. Seek the expertise of an experienced R&D tax credit agent to ensure precise calculations.
Submit a Claim:
Prepare and submit an R&D tax credit claim according to the procedures and deadlines specified by HMRC through their Additional Information Form and accounts. This typically involves completing the necessary forms or documentation and providing a detailed description of your R&D activities, eligible expenditures, and supporting evidence.
Research and development tax credits can be a valuable incentive for companies engaged in innovation. However, navigating the eligibility criteria and claim process requires careful consideration and attention to detail. By familiarising yourself with the guidelines, documenting your R&D activities diligently, and seeking professional advice, you can maximise your chances of qualifying for R&D tax credits.
In the dynamic landscape of R&D tax relief schemes, a pivotal change has quietly disrupted the routine of many R&D claim providers—the introduction of the Additional Information Form (AIF).
The recent Autumn Statement officially announced the merger of the R&D tax relief schemes, scheduled to take effect from 1st April 2024, for accounting periods starting after this date.
Assists organisations in accessing research and development grant funding across a range of UK and EU schemes and industry sectors.Get In Touch