R&D Tax Credits: What Are Qualifying Indirect Activities?
Understanding HMRC’s guidelines for R&D tax credits claims
When it comes to making a fully optimised R&D Tax Credits claim, it’s essential to understand which costs can be included and which can’t.
Many activities that form part of an R&D project do not directly contribute to resolving a scientific or technological uncertainty. However, according to the BEIS guidelines, they can still be included in a claim.
The guidelines say:
“ Activities which form part of a project but do not directly contribute to the resolution of the scientific or technological uncertainty include:
- Scientific and technical information services, insofar as they are conducted for the purpose of R&D support (such as the preparation of the original report of R&D findings);
- Indirect supporting activities such as maintenance, security, administration and clerical activities, and finance and personnel activities, insofar as undertaken for R&D;
- Ancillary activities essential to the undertaking of R&D (e.g. taking on and paying staff, leasing laboratories and maintaining research and development equipment including computers used for R&D purposes);
- Training required to directly support an R&D project;
- Research by students and researchers carried out at universities;
- Research (including related data collection) to devise new scientific or technological testing, survey, or sampling methods, where this research is not R&D in its own right; and
- Feasibility studies to inform the strategic direction of a specific R&D activity."
If the time spent on an activity has not directly contributed to resolving a specific scientific or technological challenge - and it doesn’t fit within any of the categories above - then it must not be included in an R&D tax relief claim.
Other costs to include in your R&D tax credits claim
Here at Tax Cloud, we can instantly spot why a claim may have been unsuccessful. Often it’s because an applicant has tried to ‘DIY it’, having not become fully familiar with HMRC’s rules. While this approach can often lead to a claim investigation or rejection, out of those that are successful, you can almost guarantee that some eligible costs will have been missed out.
This can have a sizeable impact on the amount of R&D tax credits received.
Making your claim using the Tax Cloud portal will ensure that all your costs are included correctly, and you receive the full amount you’re entitled to. More on this further down.
Payroll/clerical type activities are mentioned in the BEIS guidelines above. However, as it’s such a big part of most people’s R&D Tax Credit claims, we wanted to highlight it further.
As payroll supports the R&D activities - even though it doesn’t directly contribute to the technological or scientific advancement - it can still form part of a claim. Paragraph 31 of the BIS R&D Guidelines goes into this in more detail.
Previous state aid grants (including those offered by the government during the coronavirus pandemic) can also impact your R&D tax relief claim.
Essentially, a company that has previously benefitted from notifiable state aid, will need to make their R&D Tax Credits claim using the RDEC scheme, regardless of their size or turnover.
This is because the SME branch of the R&D Tax Credits scheme is already classed as state aid, and you can’t double-up.
Having said that, if the grant is not notifiable state aid or has been distributed by the EU, it may be possible to split the costs between the (less generous) RDEC scheme, and the more generous SME branch. Very few people realise this.
For example, imagine a state aid grant covered 50% of the eligible R&D project costs. So, 50% could therefore be claimed under the SME scheme (achieving up to 33p per £1 of expenditure) and the subsidised 50% would come under RDEC (achieving 10p for every £1).
The point is, the RDEC scheme is less generous, but it’s not always necessary to make an entire claim using it. Again, this is why trying to do a DIY claim is strongly discouraged.
Travel expenses are often overlooked in an R&D Tax Credits claim, but we think it’s because the rules are a little odd.
For example, an employee takes the train to a meeting about a particular aspect of their R&D project. If the employee pays for the ticket themselves and then puts in an expenses claim with their employer for a reimbursement, it can be included in a claim. BUT, if the employer paid for the train ticket directly, or the employee used a company credit or debit card, then it can’t be included.
Strange indeed, but this is what HMRC states. Therefore, if a company sends employees on trips that incur expenses, and there’s a plan to claim R&D Tax Credits, it’s worth bearing this odd little rule in mind.
Overheads such as water, gas and electricity
This is another set of costs which are often overlooked when putting together an R&D Tax Credits claim. But the fact is, these costs can be apportioned so that only the overheads that were used in the R&D process can be claimed.
For some companies the impact of claiming for such overheads may be small. However, for companies undertaking more energy-intensive R&D (such as manufacturing and engineering) claims can be very high indeed.
How the Tax Cloud portal makes claiming R&D Tax Credits hassle-free
Developed by the R&D Tax Credits experts at Myriad Associates, the Tax Cloud portal is a straight-forward, fully guided way of making a high-quality R&D Tax Credits claim.
Easy and quick to use, it’s simply a case of following each step to insert the details of your business, your project and your expenditure. Our team are on hand to advise you at every stage, plus the fees are far lower than a traditional R&D tax claims service. You don’t even need to pay anything up front.
Tax Cloud is, as the name suggests, totally cloud based so it can be accessed online from any device, any time and in any place, securely.
- Submitting R&D tax claims since 2001
- 100% success rate
- Over £100m claimed and counting
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- In-house technical, costing and tax experts
- Member of the Research and Development Consultative (RDCC) committee
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