R&D Tax Credits: Don’t fall through the HMRC trapdoor
You know that saying “Fail to prepare, prepare to fail”? Well that’s certainly the case when it comes to R&D Tax Credits.
Life is busy and it’s easy to think you can tick a few boxes, answer a few questions and hey presto your R&D tax relief claim is paid out to you. But sadly, far too many people have fallen foul of HMRC’s strict regulations, usually by trying to DIY it rather than taking professional advice.
If HMRC spot any errors in your claim, however innocent, you can expect a long and not so nice letter from the HMRC R&D unit. This will be accompanied by a sizeable list of questions as well as a request for evidential justification to support your claim.
It doesn’t stop there though. You can also expect a few rounds of correspondence and you shouldn’t be surprised if HMRC takes a hard line on asking ‘is this project really an advancement in science or technology?’.
To help avoid falling through this HMRC trapdoor, which can delay your claim and take up unnecessary effort, we recommend the following top tips when preparing an R&D Tax Credits claim.
Submit an R&D tax claim report to HMRC
Although it isn’t a legislative requirement, HMRC prefers you to submit an R&D tax claim report that includes a detailed breakdown of the costs you are claiming and a comprehensive technical report. If you don’t submit an R&D tax claim report, HMRC may well come back to you with a long list of questions and a request for more information.
We can’t stress strongly enough how important your technical report is, and there’s a definite knack to writing them. The language you use and the level (and type) of detail you include are key to helping HMRC assessors understand your project and why it should attract the relief.
So what should the R&D technical report include? Well, it needs to provide an outline of the project and answer the following questions:
What was the state of art (SOA) at the commencement of the project and how does this project make an appreciable improvement over the SOA?
At the commencement of the project, did the technical lead identify any technical uncertainties that, if resolved, would amount to an advancement in science or technology within the marketplace?
Is the knowledge or capability required for the project not readily available in the public domain, and considered not easily deducible by a competent professional working in the field?
We recently put together our R&D Tax Credits: A quick guide to technical reports which should help you here.
Invest in a timekeeping system
As a minimum, we recommend that each person directly engaged in R&D keeps a record of their time. This needs to be kept for each R&D project and split between qualifying and non-qualifying activities. HMRC will consider best estimates for early year claims and appropriate apportionment of time for people indirectly involved.
Make sure you submit your R&D tax claim on time and don’t leave it to the last minute
A business can submit an R&D tax relief claim at any time up to the first anniversary of the filing due date of the company tax return for the accounting period in which the claim is made (paragraph 83E(1) of Schedule 19 to the Finance Act 1998). This means that a business can make claim for R&D tax relief going back 2 accounting years. The claim can be made in a company tax return or in an amendment to it.
Work with an R&D tax credit firm that employs technical experts, cost accountants and R&D tax specialists
A reputable R&D Tax Credits consultancy will ensure that your claim is maximised and fully documented. It’s always a good idea to work with a specialist boutique consultancy that understands your industry sector, as they will be able to identify all qualifying projects and eligible costs as well as prepare the technical report. It is important to make sure that they will respond to any questions or enquiries from HMRC at no additional cost.
If you are considering using an online R&D tax claim portal, such as Tax Cloud, then we would recommend that you use one which is guided and fully supported by leading technical experts, cost accountants and R&D tax specialists. It really is likely to make all the difference between success and failure.
Who qualifies for R&D Tax Credits?
Many businesses don’t realise that they qualify for R&D Tax Credits or that they are not claiming their full entitlement. The R&D tax relief scheme has been in existence for over 20 years and around £7.4 billion a year is currently being claimed.
Any company that is taking a risk by innovating, improving, or developing a product, process or service will very likely qualify for R&D tax relief. The project must contain a level of technological or scientific uncertainty (in the opinion of a competent professional) and must seek to achieve an advancement in technology. If the team involved with a project were scratching their heads to find a solution to technological challenges, that’s a good indication that qualifying R&D activities were taking place.
Ready to make your claim for R&D Tax Credits?
With over 10 years’ experience solely in R&D tax relief, funding and R&D grants, the Myriad Associates team launched the Tax Cloud portal back in 2017.
Designed to take you through the process of claiming R&D Tax Credits in a step-by-step way, each stage is easy to follow and supported by our experts. It’s completely cloud-based too, so there’s nothing to download and you can complete your claim from anywhere 24/7.
And the best bit? By using the Tax Cloud portal you not only maximise your claim but drastically reduce the risk of an HMRC enquiry too.
- Submitting R&D tax claims since 2001
- Strong track record spanning 20+ years delivering R&D tax credit claims
- Over £70m claimed and counting
- Industry leading specialists
- We employ technical, costing and tax experts and tax experts
- Confident of delivering value to our clients, we offer our R&D tax services on a success fee-only basis.
Meet some of the team behind Tax Cloud