R&D Tax reliefs are a government incentive designed to encourage innovation and technological advancement within the UK business community.
The scheme is available to companies of all sizes across various sectors, ranging from manufacturing and technology to pharmaceuticals and engineering.
R&D Tax Reliefs are changing
However, there has been numerous changes to the R&D scheme in the last few years, with changes to the amounts of relief available, new mandatory reporting requirements, the merging of the SME and RDEC schemes and changes to rules on subcontracted R&D and overseas expenditure, plus changes to eligible expenditure categories.
Coupled with increased HMRC compliance activity, it’s very important to be aware of the implications of all these changes and it has never been more important to ensure R&D tax relief claims are fully compliant, checking all the right boxes.
Don’t be put off claiming though. In this guide we outline 10 essential tips to maximise the accuracy and robustness of your claim, whilst staying on the right side of HMRC.
1. Stay up to date with the latest rules
R&D Tax Relief rules first significant changes were in April 2023. To maximise the chances of a successful claim, and to avoid any difficulties with HMRC, it is essential that you stay up to date with all the latest legislation.
Reductions to the rates of R&D tax Relief came into effect on 1 April 2023, while data licensing and cloud computing costs were included as qualifying R&D expenditures.
Furthermore, from 1 August 2023, for an R&D Tax Relief claim to be valid, a company has needed to submit an ‘additional information’ form digitally to HMRC.
Further changes have since been made which apply for accounting periods beginning on or after 1 April 2024, which you can read about below. This also includes changes to the rules on subcontracted R&D.
2. Understand the eligibility criteria
Before proceeding with your R&D Tax Relief claim, you should build a strong understanding of the eligibility criteria.
HMRC has strict guidelines regarding what constitutes eligible R&D activity. By fully understanding these criteria, you will be able to assess much more accurately whether your projects qualify.
You can check your eligibility for R&D Tax Reliefs using our free eligibility checklist.
3. Fully document your R&D projects
Clear and detailed documentation plays a vital role in any successful claim.
You should maintain comprehensive records of your R&D projects, including project plans and timelines, technical specifications, testing procedures, and details of any challenges or uncertainties encountered.
It’s also really helpful if you record R&D activity of staff on timesheets and ideally their role in each stage of the R&D project. HMRC now ask the project costs to be allocated per project as well, so the more detailed and comprehensive your documentation, the stronger your claim will be.
4. Collaborate closely with your technical teams (“Competent Professionals”)
The role of the “Competent Professional” is vital to validate any R&D project.
HMRC’s definition of a competent professional can be found here. You should be able to document the research that has been done in order to demonstrate that the project is seeking an overall advance in knowledge or capability, in a field of science or technology.
There might be several competent professionals in a business, but they will be one of the key people that needs to be involved in detailing the work done on the R&D project for the technical report that needs to be submitted to HMRC.
5. Identify all eligible expenditures
R&D Tax Relief allows you to claim tax reliefs, tax credits or enhanced deductions on qualifying expenditure. It is crucial to identify and include all eligible costs, such as employee salaries, subcontractor or third party worker fees, consumables, and software licenses, plus from 1 April 2023, cloud computing and data licensing costs.
It is important to note that for accounting periods beginning on or after 1 April 2024, any overseas expenditure on subcontractors or third party workers is no longer eligible, which you can read more about in our guide.
6. Seek professional assistance
Navigating the complexities of an R&D Tax Relief claim can be challenging, especially with all these changes and for any businesses with limited experience in the field.
Seeking professional assistance from experts who specialise in R&D tax incentives can significantly enhance your claim's chances of success, and reduce the risk of penalties.
Claims by the Radius R&D Tax Relief team at Shorts are prepared by fully qualified professionals who specialise in R&D and Patent Box. We have detailed quality assurance processes to ensure claims are fully optimised and compliant. We encourage you to contact our team today if you wish to maximise your claim.
7. Do not miss deadlines for submission
Stay vigilant about the submission deadlines for your R&D Tax Relief claim as missing deadlines can result in the loss of potential tax reliefs.
While you can generally submit an R&D Tax Relief claim within 2 years from the end of your accounting period, if you are a first time claimant or have not made a claim in the last 3 years, you will need to pre-notify HMRC of your intention to make a claim within 6 months of the end of the relevant accounting period. If you don’t, the claim will be rejected for that period.
Additional Information Form (AIF)
HMRC also introduced the mandatory submission of the Additional Information form (AIF) since 1 August 2023, which asks for all the technical narrative on the R&D projects and allocation of costs per project.
This has to be submitted before the Corporation tax return, on which the claim is formally made, has been submitted. If the tax return is submitted before the AIF, then the R&D claim is removed from the tax return.
It is a good idea to set up a reminder system and allocate sufficient time for the preparation and review process. That way you can avoid any last-minute rush, which can lead to errors.
8. Prepare a robust technical narrative
A well-crafted technical narrative is another key component of a successful claim, which will rely on the input of the “competent professional” mentioned at tip four above
Make sure you have identified the baseline in the technology that the advance is being measured against, and clearly articulate all the technical uncertainties, and activities involved in trying to resolve these uncertainties in your R&D project.
Describe accurately how these activities meet the eligibility criteria and contributed to the advancement of knowledge or capability in the field of science or technology you work in.
9. Carefully review and validate your claim
Thoroughly review and validate your claim before submission. Ensure all information is accurate, consistent, and supported by the necessary documentation.
If you have prepared the claim yourself, consider consulting an independent third party to conduct an external review. This can provide an unbiased assessment of your claim's strength and compliance.
If you require assistance in this area, the Radius team at Shorts is happy to offer a free review of your R&D tax relief claim.
10. Maintain detailed records for future claims
Even after your current claim is processed, it is highly beneficial to maintain detailed records for future claims.
Just because HMRC process your claim, it doesn’t mean they have approved it, as they can still enquire into any claim within 12 months of the submission. A systematic record-keeping process will save time and effort when filing subsequent claims. By continuously updating and improving your documentation practices, you can maximise future R&D Tax Relief claims.
A successful R&D Tax Relief claim brings valuable financial support as a reward for your company’s innovative activities. By implementing these ten tips, you will be able to navigate the R&D Tax Relief claim process with confidence and increase your chances of a successful outcome.
If you require assistance of any kind with a claim, we strongly encourage you to contact the Radius team for a free consultation.
Darryl Hoy
Darryl is the Technical Director of the Radius team. He is a specialist in Research & Development tax reliefs, having previously worked at HMRC as an R&D Tax Inspector.
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