The Ultimate Guide for R&D 2023
Are you curious about R&D Tax Credits? Well, you've come to the right place. This article is explains all key things you need to know about this generous government funding source. We'll cover who's eligible, how much money you could receive, and even show you how to apply. And, if you have any questions about preparing your claim, our experts are ready and waiting to help you.
So, let's get started!
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1. Select the project
Okay, so you're ready to build your R&D Tax Credits claim? The first thing you'll have to do is to identify which projects you want to include in your claim. Make sure that each project you choose meets the BEIS definition of R&D and consists of eligible activities.
Once you've got your list of eligible projects, it's time to decide which ones to write about in your technical narrative. You'll submit this document to HMRC to demonstrate your R&D tax credits eligibility.
Now, when it comes to your narrative, you'll want to make sure that it covers enough projects to account for at least 50% of your eligible development costs. And it's important to choose the projects that will add the most to your claim.
It's worth mentioning that writing a technical narrative isn't mandatory, but it can significantly reduce your chances of an inquiry and speed up the processing time for your claim.
2. Choose the scheme you want to apply to
Okay, so you've got your list of eligible projects and your technical narrative all set. Now it's time to figure out if your company and projects qualify for SME R&D Tax Relief or the RDEC scheme.
Highlighted bleow what you need to consider:
Your company size
If you've received state aid
If your business is linked or partnered with another company
If a large company subcontracted you
You must remember that the scheme you choose to apply for will affect the cost of your claim and the amount you can claim for. So, you want to make sure you're making the right choice.
If you're feeling a little unsure about which scheme to apply for or you're looking to split your claim to maximise your relief, don't hesitate to reach out to an R&D Tax Credits specialist.
They'll be able to guide you through the process and make sure you're getting the most out of your claim.
Get expert advice on the scheme that suits your company.
3. Financial calculations
Alright, so you've got your scheme figured out, it's now time to calculate your "total qualifying expenditure." To do that, you need to identify all the costs that qualify for R&D Tax Credits and the ones that don't.
Once you've got that list, you need to determine the amount you can claim under the scheme you're applying for and divide your costs accordingly.
Here's where it gets interesting, depending on the scheme you're applying for, the next steps will vary.
If you're claiming R&D Tax Relief through the SME scheme and your company is currently unprofitable or has been taken into an artificial loss by the enhancement mechanism, the good news is that your corporation tax liability will be zero.
And that's when you get to choose what to do with your loss, carry it forward to set against future profits or surrender it to the government for a cash credit.
4. Write a good technical report
Here's the deal, for RDEC claims, submitting a technical report is mandatory, and for SME claims, it's mandatory starting April 2023.
But let me tell you, submitting a clear, well-structured technical narrative will significantly affect how fast your funding gets approved and your chances of a successful claim.
Plus, it'll reduce your chances of facing an HMRC enquiry, which can delay your claim for several months.
Your narrative should be about two to five pages long. It needs to explain the advances your business was trying to make. It also needs to mention why the work was necessary and which uncertainties you stumbled across the way.
And according to HMRC's guidance, it's best to write about only a few of your projects. This makes it easier for your tax inspector to understand and stay true to HMRC's guidance.
But here's the thing, writing a technical report can be difficult and time-consuming, but it doesn't have to be. By working with an experienced R&D Tax Credits specialist, they'll make the process a whole lot easier and ensure that you're putting your best foot forward.
5. Update your CT600
So, you've done the calculations, next up, you need to input them into your company's CT600. But, before you do that, you need to figure out which R&D Tax Credits scheme you want and whether you're claiming corporate tax relief or payable tax credit.
Here's the deal, the scheme you choose to apply for will determine which box you need to input your calculations. So, it's crucial to ensure you're filling out the right one.
Looking for a little inspiration?
6. File your claim
You've done the hard work, and now it's time for the easy last step - filing your claim. To file your claim, you must send your company's updated CT600, your technical narrative and financial calculations to HMRC.
RDEC or SME: Which Scheme Should You Apply To?
There are two main schemes of R&D Tax Relief: Development Expenditure Credit and SME R&D Tax Relief.
Now, the scheme you can apply to will depend on four factors, and those factors are:
Your company size
Linked and partnered enterprises
So, it's important to take those factors into consideration before deciding which scheme to apply for.
Maximising your R&D Tax Relief claim
Keep a record of your R&D challenges
It's always better to keep a running log of any issues and obstacles you've faced instead of trying to remember everything when it comes time to write the technical narrative of your claim.
Keeping detailed records of all obstacles and attempted solutions is crucial for a successful claim.
Here's what we suggest: every quarter, take some time to reflect on your company's challenges and why they were challenging. Make a note of what solutions you tried and if they worked or not.
This way, when it comes time to compile your technical narrative, you'll have a clear and detailed account of everything that happened. Trust us, this will make the process much easier and increase your chances of a successful claim.
And when it comes to recording your challenges, you have a few options. One of them is to hold regular meetings with your development team and management where you discuss progress, business, and challenges faced. Make sure someone takes notes and keeps them in a safe place.
Another option is to use a digital tool to keep track of your challenges and progress. This way, you can easily access your notes anytime, anywhere, and you don't have to worry about losing them.
And if you're working with an R&D Tax Relief consultant, we can help you with this step. We'll ensure that you're capturing all the right information and that it's all in one place. This way, you can focus on your work and leave the record keeping to us.
2. Keep a good track of staff and materials
Keep records of all expenses, including materials, equipment, and employee time. It's important to note that the more detailed your records are, the better.
This makes it easier to identify eligible costs and ensures you're not missing out on any potential funding.
3. Account for every penny
Are you wondering how much R&D Tax Relief your company can receive? Well, it all comes down to the size of your claim. That's why it's important to ensure you're accounting for every penny of eligible expenditure.
But don't worry. It's not as complicated as it sounds. You can easily do this by going through your outgoings and checking eligible ones.
Make sure you're covering costs for utilities, consumables, and all the staff involved in the project, including those involved in eligible indirect activities.
This way, you'll ensure you're capturing all the eligible costs and maximising your relief.
4. Be loss savvy
You're considering the "surrendering your loss" mechanism for R&D Tax Credits, which allows unprofitable companies to convert their losses into cash. But before you decide, it's important to understand how this mechanism works and how it may impact your company's financial situation.
First, it's important to note that carrying forward losses is generally considered more beneficial than surrendering them.
This is because you can offset 19p for every £1 loss against future taxable profits when you carry forward a loss. However, if you surrender a loss, you'll only receive 14.5p for every £1 loss.
That being said, there may be situations where surrendering your loss is the better option.
Highlighted below are a few things to consider:
If your company is expecting a loss in future years, it may be more beneficial to surrender the present loss and unlock cash now.
If your business needs money now and isn't expecting to be profitable in the near future, surrendering your loss can provide a quick injection of cash.
If you're not sure whether you should surrender your loss or carry it forward, it's best to speak with an R&D Tax Credits expert who can help you understand the pros and cons of each option and help you make an informed decision.
Keep in mind that this decision can be complex, and it's best to consult with an expert to determine the best course of action for your company.
5. Balance your technical narrative
When it comes to your technical narrative for your R&D Tax Credits claim, it's important to think about the size of your claim and how that should impact the length of your narrative.
You don't need to write a novel, but it's important to include enough detail to convey the significance of particularly costly, complex, or lengthy projects.
So, ensure to include the necessary information that showcases the project's cost, complexity and length in your narrative.
6. Cross check everything
Before you submit your claim, it's crucial that you double-check everything to make sure everything adds up. Take the time to go through your claim with a fine toothed comb and ensure all your calculations match your P&L, tax computations, and CT600.
Trust us, the last thing you want is for HMRC to see inconsistencies in your numbers. Make sure all costs are matched and consistent. This way, HMRC can easily identify which costs are located where.
What happens after I apply?
So, you've just hit submit on your R&D Tax Credits claim, and now you're wondering what's next if anything could go wrong, and when you'll see that money in your account.
I totally understand. It's normal to have questions and concerns. That's why I'm here to walk you through all the steps after you file your claim so you know exactly what to expect.
So, what happens after you've submitted your R&D Tax Credits claim? Well, first things first, an HMRC inspector will take a closer look at your claim to ensure everything is in line with the scheme's regulations and definition of R&D.
If they give the green light, you'll receive your funding directly to your company's bank account or a confirmation letter. But, if they have any doubts, they'll launch an enquiry to investigate your claim further.
When should I receive my R&D Tax Credits?
It's essential to keep in mind that HMRC aims to process 95% of claims within 28 days, but it can take anywhere from 20 to 100 days, depending on the time of year and the complexity of your claim.
And once HMRC has processed your claim, you'll have to wait another 20 days to receive your money. So, it could take up to 120 days to get your R&D Tax Credits."
What Happens When I Make a Mistake in My Claim?
If they approve your claim, you'll receive your money in your company's bank account or a letter confirming the processing of your tax deduction. But if they don't approve your claim, an enquiry will be launched.
We know that the thought of an enquiry can be daunting, but don't worry, it's just an investigation to make sure your claim is legit and everything adds up. Even if your claim is accurate, it can still take a few weeks and delay your cash credit or tax relief by up to six months.
In some cases, they may even reject some or all of your claims or find you guilty of negligence or fraudulent expenses, which can come with a hefty fine.