The 3 Step Guide to Claiming R&D Tax Relief
Research and Development Expenditure Credit (RDEC)
- For businesses with over 500 employees
- With a turnover of €100m or more and at least €86m in gross assets
- Since April 2020, this allows a company to claim back 13% of their R&D expenditure, amounting to 11p for every £1 after Corporation Tax deductions
Research and Development tax relief for SMEs
- For businesses with 500 employees or under
- With a turnover of €100m or less and under €86m in gross assets
- Offers a 130% deduction of qualifying R&D costs from yearly profit (in addition to the 100% deduction, totalling 230%) or
- A tax credit if the company makes a loss, worth up to 14.5% of that loss
- Allows companies to recoup up to approximately 33.35% of their R&D costs
So how do you go about claiming R&D tax relief and what do you need to add to your R&D tax relief checklist?
1. Learn Your Way Around the Schemes and Terminology
A basic starting point is to read up on the two schemes. You may already have a broad idea of whether or not your business is undergoing R&D. HMRC uses a lot of terminology and definitions to which you’ll need to note and use in your applications. The most important definition is the definition of R&D itself. Regardless of which scheme you’re applying to, R&D is defined by HMRC in the same way.
Has to be related to science and technology
R&D can’t be related to social science, e.g. economics, or in theoretical fields like maths or theoretical science (physics, chemistry, etc). It has to relate to material progress and development of physical products, processes, and innovations, or processes within these fields. It’s important to note that qualifying costs only are associated with the R&D, not the production or implementation.
Had to Overcome Uncertainty
‘Uncertainty’ here is an HMRC buzzword that indicates any barrier to reaching a business goal which then leads to research and development. This might be integrating new technology into products, researching novel processes and manufacturing techniques, etc.
Couldn’t Find Existing Methods to Overcome Uncertainty
R&D only applies when a business can’t use existing methods or technologies to overcome these barriers, thus necessitating R&D. The advance in R&D must also be unresolved, and you must demonstrate that you couldn’t simply hire someone to solve your issue for you.
What costs qualify?
Next, learn what costs you’ll need to identify in your business.
If your business and project meet the R&D criteria, you can claim the following qualifying costs:
- Staff costs, including salaries, employer national insurance contributions, and any pension fund contributions
- Subcontracted R&D costs
- Prototype development
- Software development
- Clinical trial volunteering costs
- Independent research costs
- Consumables used during R&D
Costs you can't claim for
In both tax relief schemes, you cannot claim for the following:
- Production and distribution costs
- Commercial rent
- Land costs
- Patenting or trademark costs
- Capital expenditure
2. Write Up A Technical Narrative
This is the bulk of a successful claim and you’ll need to go into sufficient detail without bombarding HMRC with bloat, and unnecessary fluff. The technical report needs to be explicit into first proving your business’s eligibility before moving onto the figures of your project, your project’s intent, and why tax relief will help.
The emphasis here is placed on why you need tax relief. You’re not applying ‘just because you can’, you’re applying because you’re undergoing an R&D process that will be useful for your field and your business. The point is to highlight the future economic value of your plans, that is why the government is giving you tax relief - because your R&D provides value. One headline of the write-up will be your total costs - this is what your relief will be calculated on. This will be your “total qualifying expenditure” and will have to be broken down with a costing schedule.
3) Make the Claim on your CT600
You will need to enter your total qualifying expenditure into the appropriate box on the CT600 and then send your supporting evidence and technical narrative through the HMRC website. This will need to be submitted with technical and financial summaries and calculations. The tax relief application alongside tax calculations, the tax return, and accounts will be reviewed by HMRC’s specialist R&D tax units.
Accountancy Cloud: The R&D Tax Credit Specialists
If you’re wondering how to claim R&D Tax relief or wish to undergo an R&D tax credit claim, it’s highly advisable to do it with trained specialists who’ll check your claim and help you avoid any HMRC enquiries. Accountancy Cloud are R&D Tax Credit specialists and we can work with you to suss out your claim and make sure your details are in perfect order, get in touch today, to get started.
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