The Absolute Best Way to Submit a R&D Tax Credit Claim
Submitting an R&D tax credit claim is a long process, peppered with hurdles, from the technical report to accurately capturing all your eligible costs. At the end of the job, many think that submitting the claim is the easiest part; after all, all you have to do is send it to HMRC. But what’s the best way to do this, making sure your claim is accepted and you receive your tax credit as quickly as possible?
What are R&D tax credits?
Before getting into the ins and outs of sending off your R&D claim report, it’s probably best to explain what R&D tax credits are. Introduced in 2000 by the UK government, Research and Development (R&D) Tax Credits are one of the most generous incentives to encourage investment in innovation. Offering up to 33% of eligible costs back, companies pushing the bounds of science and technology and creating or making great improvements to a product, process or service can make a claim and receive a vital source of finance, which can be re-invested in the R&D strategy.
What kind of projects are eligible for R&D tax credits?
Any company in any industry may be eligible for R&D tax credits. The criteria for R&D tax credits are intentionally broad, to encompass all sectors and all types of activity, from heavy, applied research to experimental development by trading companies improving their services. Creating new or enhancing existing products, processes and services is the basic principle guiding qualification.
A good test for eligibility is asking if your team faced uncertain outcomes at the start of the project. You’ll then need to prove you went beyond simply applying existing technologies and made an advance in science and technology. You can find examples of qualifying projects in software, pharmaceuticals, manufacturing, agriculture and finance.
What costs are eligible for R&D tax credits?
The list of eligible costs is relatively short, but encompasses a large amount of the expenditure related to R&D. Qualifying companies can claim on:
- Staff costs, such as salaries, pension contributions, reimbursed expenses and employer’s NIC
- Freelancers, agency workers and subcontractors
- Various types of software
- Consumables including power, heating and lighting that are used up or transformed by the R&D process.
- Payments to clinical trial volunteers
In the 2021 Budget, the UK government announced they’ll be expanding the list to include Cloud computing costs, in an effort to keep the scheme modern and reflect the nature of much of today’s R&D.
Which R&D tax relief scheme is right for me?
Depending on your company’s status and your accounting position, you will be applying to either the RDEC scheme or the SME scheme. The SME scheme is aimed at, as you can imagine, SMEs (i.e. companies employing fewer than 500 people, with an annual turnover of €100 million or with a balance sheet of over €86 million). Though it pays out a similar amount to the RDEC scheme due to the size of the claims, many more companies apply to the SME scheme (76,225 SME claims versus 9,675 large company claims in 2019).
The R&D Expenditure Credit (RDEC) scheme is aimed at large companies and those who have received notified state aid or do not meet the requirements of the SME scheme. It offers tax relief at a lower rate, sitting around the 13% mark at present, compared to the 33% attainable for SMEs. Both schemes offer support to loss-making companies.
How can I submit my R&D claim efficiently?
Having established your eligibility and finished your claim, companies still need to submit their claim. Navigating the bureaucratic web of HMRC can be difficult and there are multiple options for submission.
You can either:
- Include it in your tax return if you’ve not yet completed it
- Amend a completed tax return after it has already been filed
Here at Tax Cloud, we’ve submitted thousands of claims and in our extensive experience, we’ve found that submitting an amended tax return is the most efficient way to make a claim.
You must include your R&D tax credit claim figures on your company tax return, or CT600, to make a valid claim (alongside the justification for your costs). However, when submitting your CT600 for the first time, it arrives at a general HMRC office to be processed. The staff that treat your CT600 are not R&D tax credit specialists and rarely come across a tax credit claim in the usual order of business. They often treat these cases with more attention and can come back with further queries than you might expect from the usual R&D department would. Calls, emails, letters and meetings can take time and money and, depending on the workload, can mean your claim takes months longer to process than it usually would.
The best thing to do to avoid this is to file for your Corporation Tax as usual and then resubmit with an amended CT600 when it comes to making your R&D tax credit claim. This means the paperwork goes directly to the people most familiar with the matter and you have a quicker turnaround and a more direct contact line when it comes to getting your entitlement.
The most important thing is to continue to practise good bookkeeping, in general, and for your R&D tax credit claim. Your priority is to submit an accurate tax return, however, amendments are certainly allowed, so long as they too maintain the accuracy of the original submission.
If you feel you may be eligible for R&D tax credits or want to know more about submitting a claim, get in touch with the experts at Tax Cloud. Powered by Myriad Associates, we know everything there is to know about innovation funding and can guide you on the journey to claiming your tax relief. Get in touch using our contact page, or call us on 0207 360 4437.
- Submitting R&D tax claims since 2001
- 100% success rate
- Over £100m claimed and counting
- Industry leading specialists
- In-house technical, costing and tax experts
- Member of the Research and Development Consultative (RDCC) committee
Meet some of the team behind Tax Cloud