Research and Development Tax Credits – Top Tips

Article by Bishop Fleming.

Bishop Fleming is a partner for Growth Forge 2024, a business acceleration programme for ambitious tech companies. Learn more here.

Research and Development (R&D) Tax Credits for companies in the UK are a valuable incentive provided by the government to encourage innovation and technological advancement within businesses.

They can be a useful source of funding for a growing company in order that it may continue to innovate and grow.

For a claim under the scheme, the following tips are a useful aide memoire.

Understanding Eligibility Criteria

The rules are detailed and are subject to change, so it is important to understand how they work and apply to your company’s R&D activities. Your company’s projects need to meet the requirements of the rules and the criteria for eligibility set out in guidance by HM Revenue & Customs.

Since 2023, HMRC also require the submission of an ‘additional information form’ to support any claim.

Your company’s activities should seek to advance the overall knowledge and capabilities in a field of science or technology.

Keep Detailed Records

As part of authenticating a claim, the company has to maintain comprehensive documentation of its R&D projects, including project plans, progress reports, and financial records. Clear documentation strengthens your company’s claim and facilitates the review process.

Identify Qualifying Costs

Keeping detailed records helps to recognise all eligible costs associated with your company’s R&D projects, such as staff salaries, subcontractor costs, consumables, and software expenses.

Separate R&D Costs from Routine Activities

In keeping detailed records, this should help to differentiate between activities that are R&D from other routine business operations.

Define R&D Projects Clearly

The scope and objectives of each R&D project should be as clearly defined as possible in terms of both the scope and objectives.

A well-defined project should have a a clear link to technological or scientific advancement in order to qualify for tax credits.

A claim can be enhanced if the submission provides detailed explanations of not only the technical aspects of the project, but also the nature of the advancement sought and what uncertainties were overcome, together with failures and successes.

Seek Professional Assistance

In seeking to compile a claim to be submitted to HMRC that is well put together and is robust enough to stand up to scrutiny, engaging with experienced R&D tax advisors is recommended in order to navigate the complexities of the tax credit process, and to ensure you maximise your company’s eligible claim. Ideally, partner with specialists who are a member of a professional body, like the ICAEW) and who as such will complete work in line with the PCRT (Professional Conduct in Relation to Taxation) guidelines.

Regularly Review and Update Claims

A regular review of your company’s activities will help to identify and clarify any R&D projects which could add to your company’s claim. This ensures that you capture all eligible costs over time.

Collaborate with HMRC

Respond promptly to any queries or requests for additional information from HMRC, as this helps to expedite the claim.

Consider SME and RDEC Schemes

There are currently two types of R&D schemes, and it is important to understand whether your company qualifies for the SME scheme or the Research and Development Expenditure Credit (RDEC) scheme, as eligibility criteria and benefit rates differ.

However, the two schemes merge into one from 1 April 2024, so this will remain an issue for activities before that date and for R&D “Intensive” companies.

Plan for Future R&D Activities

In contemplating a possible claim, you can develop a strategic plan for future R&D projects, considering the potential impact on your business and the eligibility for continued tax credits.

Since 2023, there has been a new advance notification procedure that requires companies to inform HMRC of their intention to make a claim, prior to submitting it.

Although this will mainly be of relevance to any company that is contemplating making its first ever claim, it can also apply where there has been a long period of time since a previous claim.

Further information

If R&D tax credits are of interest for your business, or you would like to discuss how you could make a claim, please contact a member of our Technology team for a conversation.

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