An R&D tax credit could be an untapped source of funding which can be reinvested in your business. Figuring out the claim process isn’t straightforward if you’ve not done it before.
Here we outline the 5 key steps you need to take to prepare your R&D tax credit claim.
#1 Know which scheme you qualify under
One of the first things you need to do when preparing for your R&D tax credit claim is to determine which scheme you’ll need to claim under. This is either going to be the Research and Development Expenditure Credit (RDEC) scheme or the SME scheme. This article relates to the SME scheme, which is for businesses which fall into the following category:
- Staff headcount (less than 500)
- Either turnover (€100m) or balance sheet total (less than €86m).
If your business is bigger than this, you will need to file your claim under the RDEC scheme.
#2 Identify any qualifying R&D activity
You then need to determine what qualifies for R&D tax relief. For tax purposes, R&D takes place when a project seeks to achieve an advance in overall knowledge or capability in a field of science or technology.
To qualify, projects must involve
- Carrying out R&D work in the field of science or technology.
- Undertaking R&D to overcome difficult technological problems.
This can include:
- Creating new processes, products or services, making appreciable improvements to existing ones and even using science and technology to duplicate existing processes or develop products and services in a new way.
See our article on how to identify if your project qualifies.
#3 Calculate the qualifying R&D expenditure
How much your R&D tax credits are worth, depends on how much you’ve spent on qualifying costs. Figuring out these costs is the starting point of your R&D Tax Credit application.
Eligible costs are those that relate to the activity of resolving technological uncertainty, both directly and for some costs indirectly. Eligible costs include:
- Direct Staff costs
- Externally provided workers
- Subcontracted R&D
- R&D consumables
- Contributions to independent research
Often overlooked are non-R&D staff involved in R&D project management, or testing of the products.
For more information on which costs are eligible, download our R&D guide.
# 3 Generate your claim report
The next step is to generate your claim report. Also referred to as the technical report, this is an essential part of the claim and outlines the processes involved in the creation of your product or service and the financial evidence of the expenditure around it.
First establish the baseline from where the advance in knowledge or capability in a field of science or technology is sought.
- Describe the advance.
- Describe the scientific and/or technological uncertainties, and how they were overcome or how the resolution was attempted.
- Demonstrate why the knowledge being sought wasn’t readily deducible by competent professionals.
- The advance does not have to be achieved -failed projects can also qualify for R&D.
The technical narrative of your report should be written in a cohesive and coherent way. HMRC have a level of detail that they require to be included in the report, so you’ll need to ensure that the report meets the criteria and that you have sufficient evidence for each point.
The time limit for a research & development tax relief claim is two years – measured from the end of your business accounting period.
This ties in with the deadline for amending any Corporation Tax on your return. If you are a business operating in your first year then you may have a different timeline, with your incorporation date creating the registration date, and your first period of accounting being defined as twelve months from the end of that nominated month. This may not apply going forward as you can choose to amend your accounting period.
# 4 Submitting and processing the claim
When you’ve completed the claim report, it will need to be submitted to HMRC.
HMRC advise that claims take a minimum of eight weeks to process from the point of submission, although this is sometimes shorter it may be significantly longer for large or complex claims.
As part of the assessment HMRC may ask questions about a claim before they process it. This is where having a strong claim report and technical narrative is important in minimising the risk of an enquiry.
Once your claim is approved it can take up to six weeks to receive the payment from HMRC.
#5 Getting professional advice
Getting the most out of an R&D tax credit application takes a real understanding of how to present your innovations to HMRC and this is where expert knowledge of both tax and the specific technical elements of your project becomes important.
Speak to one of our advisers to see how we can help you collate, process, manage and maximise your claim.