In R&D Tax Credit terms, the definition of a ‘Successful’ claim is one that is both optimised and compliant.
Just ‘winging it’ with a claim is a bit like driving a car with no insurance – not a problem till you have an accident (or in this case a HMRC enquiry which may well cause you to have an accident!)
Three stages to a successful claim
There are three stages to preparing and making a R&D Tax Credits claim – how well you complete these stages will without doubt have an impact on how successful your claim is.
The first is identifying those projects that qualify. Then you need to identify the qualifying expenditure. And then the next stage is compiling that information in the ways HMRC want it presenting to them – into a successful claim document.
Identifying Qualifying Expenditure
Identifying qualifying R&D may be the hardest part of completing a R&D Tax Credit claim, but there are a number of potential issues you need to consider when calculating qualifying expenditure. Here are just a few examples:
- Have you included managerial time for running, and administering the projects? These staff are often omitted from time recording systems, but they should not be forgotten.
- And an R&D share of general software such as Windows licences? You can claim the appropriate portion.
- Have you considered whether any offshore workers (especially in software) are sufficiently controlled to count as externally provided workers? An externally provided worker claim requires supervision rights, but these do not necessarily require personal contact.
- Are you loosely claiming for utilities other than heat, light and power?
- Are you claiming for renting computer facilities such as server capacity, because this is not a qualifying category of expenditure?
- Are any of the externally provided workers also your employees or directors, because these cannot be claimed as epws?
- Is the expenditure deductible in the tax computation for the period? This is a necessary condition for the claim to reliefs under the SME or RDEC R&D regimes.
The Role of the Company
You must look carefully at the heads of qualifying expenditure you can claim under. And while it might sound a little strange, ask a simple question – Who am I, or rather what is the company’s role?
Are you really an R&D subcontractor on someone else’s R&D project or are you carrying out “own-account” R&D to fulfil a contract for a customer? If your customer does not know or care whether you need to carry out R&D to provide their requirements, the R&D is likely to be your own, and not subcontracted.
In such a case you may be able to claim under the more valuable SME scheme instead of the RDEC one
If you are claiming under RDEC because you are an R&D sub-contractor, you can claim your own eligible subcontracting at 100% instead of 65%.
Are any of the companies that are subcontracting R&D to you themselves SMEs, because RDEC claims cannot be made for work subcontracted to you by a UK trading SME company.
Failing to understand and consider these issues (and others) can result in either an undervalued or inaccurate claim. So, as you are generally relying on your advisor to address them, you need to have full confidence in their capabilities.
An experienced and expert advisor such as MSC R&D will not leave any stone unturned or cut any corners when identifying the qualifying expenditure - our team of highly trained technical and financial experts drive the process, ask the right questions and deliver the optimum results for our R&D Tax Credit clients.