Find Out How Long You Need to Wait for Your R&D Tax Credit

R&D Tax Credit claims are often a vital source of cashflow for businesses, especially SMEs with an emphasis on innovation and experimentation. Start-ups and young companies can often find themselves counting the pennies and research and development (R&D) can be put to the bottom of the priority list. When strapped for cash, nobody wants to be waiting around for bureaucratic processes, so that’s why it’s best to know from the beginning how long you might have to wait for your R&D tax credit.

What are R&D Tax Credits?

R&D Tax Credits are an incentive introduced by the UK government in 2002 to encourage spending on research and development and stimulate the economy. The credit offers up to 33% of a company’s eligible expenditure to be recovered in either a reduction of Corporation Tax or a cash repayment. In the 2018-19 period, £6.3bn in R&D tax credits will be claimed, estimates HMRC. This non-repayable funding can be a lifeline for small companies and offers larger companies the opportunity to embed innovation into their growth plan.

R&D Tax Relief is offered to company’s engaging in specifically defined R&D activities; your company must be making an advance or appreciable improvement in science and technology beyond the state-of-the-art, as deemed by a competent professional. If your project had technological or scientific uncertainties from the outset, you will likely qualify for R&D tax credits.

What can you claim?

Limited companies engaged in R&D are likely to be eligible, however, not all costs are. As a guide, qualifying costs for R&D tax relief purposes are:

• Staffing costs (salaries, wages, overtime, employer's pension and NIC contributions etc.)
• Costs relating to Externally Provided Workers, freelancers and subcontractors
• License fees relating to software
• Consumables used up in the process of the R&D project itself, such as power, water and utility costs

There is also a time limit for claiming which, although generous, does put pressure on your claim, especially if you run into trouble making it. Companies can claim two years from the end of the accounting period in which the costs took place. For example, a company whose expenditure fell in the accounting period ending 31^st December 2019 has until 31^st December 2021 to claim for those costs.

How long does an R&D tax credit claim take?

HMRC advises that they treat applications within 28 days. However, the processing time for claims varies depending on multiple factors. The size of the claim, the complexity of the claim and its company, the scheme the claim was submitted under, the time of year and completely unforeseeable factors (like, say, a pandemic) can all affect the time HMRC takes to process R&D tax credit applications.

Workloads can affect the allocation of resources to the reviewing process. Peak accounting times like March and December are busier and therefore slower. Applications made over Easter, Christmas and summer can all take longer to process than other claims, resulting in a delay in receiving your R&D tax credit.

The size and complexity of the claim is the factor most likely to impact HMRC’s processing times, which will, in turn, affect the time it takes to receive your credit. SME claims are often the quickest, especially for smaller claims, however, if your company has a lot of projects or your accounting methods aren’t very clear, then HMRC may take longer or even start an enquiry.

Enquiries are usually nothing to worry about and can be launched for a number of reasons; perhaps your justification was not vigorous enough, or another element of your Corporation Tax return is being queried. Still, until the enquiry is resolved, a company will not receive their tax credits.

You can find the most up-to-date information for HMRC processing times on the homepage of Myriad Associates, our parent company.

Claims by SMEs

HMRC’s guidance states that the application review process takes 28 days or less, suggesting that most SMEs with simple, well-justified claims can expect their credit within a month.

The complexity of the claim will affect your waiting time, as a claim without enough justification is likely to be subject to an enquiry or further review, whereas a claim with too much supporting evidence can also affect waiting times as more time is spent going through it. Finally, claims are reviewed alongside the company’s tax return, so ensuring that all PAYE, VAT and other tax affairs are in order will reduce delays.

Claims by larger companies

Larger companies, who may have applied through the RDEC scheme, will often find their wait times longer than those of small companies. This is due to the complexity of their claims, when multiple teams and multiple projects, sometimes internationally coordinated, need to be reviewed and approved. Their tax returns are also often more complex, leading to a longer delay.

What if I submit my claim after the payment date for Corporate Tax?

HMRC will refund your Corporation Tax once your R&D tax credit claim has been processed if your tax due has already been paid. If you submit your R&D tax credit claim alongside the tax return (prior to the due date which is usually nine months and one day after the accounting period end), the business can pay the exact amount of Corporation Tax in the first instance.

How do I get started?

The process is deceptively tricky, with few legal requirements to claim but many more requirements to avoid investigation by HMRC. We recommend getting in touch with an R&D tax specialist, like Myriad Associates, to take the guesswork out of your claim, or using our cost-effective portal, Tax Cloud, which allows you to complete the claim yourself with our team of experts guiding you. In both cases, we take care of any HMRC enquiries in the unlikely event that they have any questions.

You can use our Tax Cloud calculator to get an estimate for your entitlement in R&D tax credits. To discuss further, call us on 0207 118 6045 or use our contact page for quality advice from our friendly professionals.

Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud