Making a Research and Development tax claim can be a complicated process. But it doesn’t have to be.
TS Partners want to help you maximise your R&D claim with top insider tips. These claims take time, technical expertise, and a strong understanding of what makes a valid claim. To make matters worse, any mistake in the claim can lead to an HMRC compliance check, which could set you back months.
This reason is why most SME companies ask us to help with their claims, to ensure the first claim is made correctly, and they can get the most from their R&D claim.
The Value of R&D Claims for SME
According to the most recent ONS data, SMEs make up the majority of businesses claiming R&D tax credits in the UK. During 2020/21, SMEs made up for 76,225 of the total 85,900 total R&D claims. In addition, this year saw an increase in 25% of relief claimed through the SME scheme.
Through the SME scheme, a company can get a relief of 130% of a company’s qualifying R&D costs. The amount of relief is proportional to the investment in qualifying R&D work. Therefore, the scheme rewards those companies who invest more in research and development.
Insider Tips for R&D Credit Claims
With our tips, we aim to help you make your claim easier. However, following these tips will help you provide us with the correct information to claim for you.
Knowing the Size of Your Business
Knowing and understanding the size of your business is the first and most important part of making an R&D tax credit claim.
HMRC breaks companies down into two categories: SME (Small & Medium Enterprises) and Large.
SMEs will qualify for SME R&D Tax Relief, and Large companies are only eligible for the RDEC (Research and Development Expenditure Credit) scheme.
HMRC defines a large business as one:
- Has more than 500 employees
- Or an annual turnover of over €100 million and a balance sheet worth over €86 million.
If your business doesn’t meet any of these criteria, it’s considered an SME.
Being a linked or partner company will also affect the claim; each defined in the following manner:
- A linked company is one that owns more than 50% of another business.
- A partner company is one that owns between 25% and 50% of another business.
Understanding What Qualifies for R&D Tax Credits
Identifying what projects qualify as R&D, as well as eligible costs, is probably the most important tip we can give you. Seeking our advice is a great way to maximise your R&D tax credit claim.
HMRC do have guidelines for what qualifies and what doesn’t. However, these guidelines are general and do not provide insight into specific industries. The main base to qualify is that the project overcomes an uncertainty, either technological or science.
Losses Also Count!
Carrying losses is no easy task. But surrendering losses is not always the best option; however, it is an option.
By surrendering their losses, SMEs can benefit from up to 14.5% of the total loss surrendered. This is the best option for a short-term cash flow for companies suffering a downturn. However, if you expect your company to become profitable the following year, then surrendering losses will remove these losses from future Corporation Tax (a minimum of 19% return).
So, if your company is expecting to suffer from continued tax losses, it is best to surrender the present loss. However, if you expect future profit, these losses are best used to offset Corporation Tax.
Nailing the Technical Report
The technical report is essential to any R&D claim. It’s the written narrative that provides HMRC with evidence of your research. The report is also where you explain your project, which uncertainties it tackles, and how you plan to overcome these uncertainties.
Here are our top tips on writing a successful technical narrative:
- Keep the focus on the technical aspects of the project.
- Make sure to link your project to HMRC’s definitions of a qualifying R&D project. For example, clear descriptions of the scientific or technological uncertainties and how other professionals in the field couldn’t resolve them.
- Keep It Simple. Longer narratives are not always best. Shorter, easy to comprehend narratives are easier for HMRC to review. For that same reason, it is best to avoid field-specific jargon.
- Unsuccessful projects demonstrate more than successful ones. Explain your failures, not only your successes.
Speak to the Experts
It takes time, effort, and in-depth knowledge to write an R&D tax credit claim, so our best advice is to speak with us. We can help you with everything you need to submit a successful claim.
Don’t hesitate, contact us today!
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