Understanding the R&D qualifying costs, engaging in eligible activities, and assembling the necessary documentation are pivotal steps in optimising your R&D claim. This article serves as your roadmap, shedding light on the key components that can make the difference in not only simplifying the process but also ensuring that you harness the full potential of R&D tax credits for your organisation's growth.
What is an R&D claim?
An R&D claim is a submission of an application to HMRC for tax relief and/or a cash payment which encourages R&D-intensive businesses to invest more in innovations and advancements. These claims relate to the UK government’s research and development tax credit initiative. The idea behind this initiative is to support businesses that are constantly engaged in improving their products or services through trial and error to provide optimised solutions to others.
How does it work?
Claiming R&D tax credits requires a dedicated process and specialised knowledge to understand the dynamics of the initiative, including new rates, required documents based on HMRC's guidelines, qualifying expenditures, and more. The most crucial aspect is knowing which R&D scheme category your company falls into, as it will dictate the entire claiming process. Why? Because the rates and calculations of each scheme differ significantly and have a significant impact on the outcome of the R&D claim. Now, let's delve into these schemes.
The R&D tax credit schemes
There are two types of R&D tax credit schemes. If you are a small or medium-sized enterprise, you will fall under the category of SME scheme, while large companies utilise the Research and Development Expenditure Credit (RDEC) scheme to submit their claims.
Here is an example of how both of these schemes work.
How to claim R&D tax credits?
Your R&D tax credit claim is highly dependent on the industry you work in and the specific business activities you are involved in, as the spectrum of R&D activities is wide and each case has its own dynamics, including technical narrative, qualifying costs, and so on. All things considered; you need to submit your claim to HMRC based on the following guidelines which are not exhaustive but streamline a typical process.
The R&D claim checklist
The accuracy and completeness of your application will determine the outcome of your claim. Therefore, we suggest that you follow these checks before submitting it to HMRC for consideration:
- Determine your eligibility
- Gather necessary documentation
- Identify eligible expenses
- Calculate your R&D expenses
- Understand the latest R&D tax credit rates
- Complete relevant forms and reports
- Review and verify the details of your application
- Submit the application to HMRC
Which documents are required to submit the R&D claim?
Generally, the documents you need to provide HMRC for your R&D claim are dependent on the type of business you’re in. However, these are the essential requirements from HMRC:
Existing Claimants: An information form
From August 1st, 2023, the government requests an additional information form to HMRC to support all your claims need to be submitted first, before filing your corporate tax return (CT600). Filling out this form requires some essential information such as company & contact details, accounting period start & end date, qualifying expenditures, and qualifying indirect activities.
First-time claimants: The claim notification form
In case of applying for R&D tax credits for the very first time, you need to inform HMRC in advance of the full claim through the claim notification form. You are responsible for notifying your claim, if:
- This is your initial claim.
- You claimed for the previous tax year, but you submitted the claim after the deadline of the claim notification period (which concludes 6 months after the end of the accounting period).
- Your last claim was lodged over 3 years before the final date of the claim notification period.
You must submit the claim notification form no later than 6 months after the conclusion of the relevant accounting period. Failing to meet this deadline will result in an invalid claim.
Other Required Documents for the R&D claim
There isn’t an official list from HMRC, that details exactly the record system you need to claim for R&D tax credits. HMRC has an understanding that first-time claimants most likely don’t have all the relevant documentation in their first year. To prevent extensive enquiries into your claim, we recommend that you include, but are not limited to, technical and financial reports, corporate tax documentation, accounting tax documentation, subcontractor agreements, and any other relevant documentation.
One of our success stories
One of our clients received a benefit of £82,570.25 and works in the renewable energy industry. Their R&D activities centred around biofuel technology; using a renewable process to create energy from organic waste. This was a new innovative project, which meant the R&D claim process was longer than usual to ensure HMRC had all the information it needed.
Do I qualify for an R&D claim?
To qualify for an R&D claim, you need to meet the eligibility criteria as per HMRC’s guidelines.
Got questions? You can check your eligibility to start your application with confidence.
What are R&D qualifying expenditures?
You also need to calculate the eligible expenses incurred during these projects including staff PAYE costs/pension contributions, subcontractors’ costs, consumables, software purchases, travel costs, and utility bills. You can read our blog to learn more about explaining R&D qualifying costs.
How to calculate the estimated amount you can reclaim?
Our clients have collectively claimed over £83 million worth of tax credits. Try our free R&D tax credit calculator and find out your estimated claim in just a few clicks.
What are the outcomes of a successful claim?
Upon successful approval of an R&D claim, you have the potential to receive the benefits of R&D tax credits in various forms, including corporation tax reduction, a cash refund, or a combination of both. This opens the window of opportunities to further invest in R&D activities, ultimately achieving substantial growth.
The benefits of claiming R&D tax credits
A successful claim has the potential to elevate your business by providing a financial boost and competitive edge over others. Here is what else you could achieve with an R&D claim:
- Tax credits or deductions - You pay less tax meaning you have a pot of funds to use to reinvest into your project, whether that’s to make more hires, drive your marketing strategy, or invest in new equipment
- Offset costs - Successful R&D claims may allow businesses to recover a portion of their qualifying R&D expenses. This helps offset the costs incurred during the research and development activities.
- Attract investment opportunities - A successful R&D is well regarded by prospective investors; it’s proof you’re doing something brand new and you’re dedicated to research and development. Your R&D claim could complement an investment grant, helping you to support the acceleration of your project.
- Obtain a competitive advantage - Stand out amongst other competitors with a successful R&D claim. Customers value accreditations and seeing you’ve been granted R&D tax credits could help create sales and spark interest in your project.
Final thoughts
Submitting R&D claims involves an extensive process of preparing your claim for HMRC. The key to a successful application is ensuring you have proper and accurate documentation about your project, so it is advisable to document every detail of the projects that could be part of the application. This helps you to unlock the incredible benefits of the government’s R&D initiative.
How can we help you?
Your project deserves support, that’s why Alexander Clifford is here to you maximise your R&D claim. Our processes and expertise have tremendously helped our clients collectively retrieve over £83 million, and now it’s your turn. We’re continually monitoring the changes in legislation in terms of R&D tax credit rates etc and R&D activities in different industries which keeps our success rate with HMRC at 100%. Let's connect and a dedicated R&D tax credit specialist of our team will be ready to help you with your claim process.
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