How do I know my business can make a claim?
The benefit is given through the company taxation system, so your business has to be subject to corporation tax to be able to make a claim.
How do I know whether we are carrying out eligible activities?
This is the area that needs most careful thought. It is probably true that more activities are eligible than are immediately obvious. The simplest test is that you have to be seeking technical solutions ("advances") that go beyond routine development for someone competent in the relevant field of technology - where they can't readily deduce the solution from their existing expertise, or information in the public domain.
So it needs some level of technical challenge, but it can be in a wide variety of areas: manufacturing as well as design. It doesn't have to be new, an appreciable improvement to an existing product, process, material or service might be eligible if the technical challenge is there.
What if someone is paying for the work, or it is already grant supported?
This doesn't affect the ability to claim for eligible R&D, though if you are an SME you will have to claim some or all of the project under the less generous Large Company R&D tax regime.
How does being an SME or a Large Company affect things?
The R&D tax regime is different for the two categories of company, the SME regime being around three times more generous. Where an SME carries out eligible work that is subsidised by a client or grant, it has to claim under the Large Company Scheme. Sometimes an SME may end up claiming under both schemes.
How is an SME defined?
From the total metrics of any group with which it is associated (or its own metrics if independent). To be an SME you have to have:
- A headcount of less than 500 and
- Turnover no more than €100m or total Gross Assets no more than €86m
Can we claim for R&D work undertaken outside the UK?
Yes, if the costs fall into a qualifying category and are borne by the UK company making the claim.
Can we make historical claims?
Claims can be made for up to two years from the end of an accounting period, so this often happens.
What if the project wasn't successful?
You can still claim, up to the point you stopped seeking the technical solution.
Can we claim all the costs associated with our eligible R&D projects?
Only certain categories of costs are allowed, and the capital/revenue nature of the expenditure is also important. The rules differ slightly between SME and Large Company regimes, and have some tricky points and adjustments. The categories are roughly:
- Employee costs
- Externally Provided Workers (contractors)
- R&D subcontracted to a third party organisation (limited scope under the Large Company regime)
- Consumables Items (e.g. materials)
What is the size of the benefit?
The exact benefit can depend on your tax position, but an SME claim is often around 25% of the qualifying costs and a Large Company claim around 8.8% of the qualifying costs.
What is the process for making a claim?
A claim is made within your usual tax return for an accounting period. This is a simple process for your tax advisers or accountant once they know the claim numbers. There is no defined documentation specified to support such a claim, but HMRC may well ask for supporting evidence if it is not provided - this documentation is part of our service and aims to answer all questions HMRC might have, and we recommend it goes in with the tax return for maximum efficiency.
Shouldn't my accountant be making my R&D claims?
Some accountants do support businesses in making R&D claims. Our experience is that many ask their clients to seek specialist advice as they do not have the time or expertise to effectively and efficiently prepare claims and supporting documentation. We often collaborate with accountants to offer this specialist service and have many who recommend us to their clients.
How long does it take to make a claim?
The time required to prepare the claim depends on its nature and complexity but we tend only to need 1 - 2 hours with your key technical personnel and a series of call/emails on the financial aspects of the work in order to put together a claim. Provided we have the required access to technical personnel and finance information, we can prepare claims within a number of days or a week if needed. Without time constraints, we typically aim to prepare a claim within a month of starting the process.
Once submitted to HMRC, their goal is to process claims within 28 days and cash credits are usually paid within that timescale.
How do you get paid?
Often for a first claim we agree a contingent fee - where we get a % of the benefit that is actually agreed with HMRC. This minimises the risk to a client and also naturally scales with the size of the claim, which can sometimes be hard to predict up front. Very often the larger the claim the more work is needed to support it, as HMRC expect good evidence in this situation. Once a claim position is established, subsequent years can be either on a similiar basis, or a fixed fee, or time and materials as suits a client. Many clients prefer to remain on a contingent fee basis as this includes us defending the claim to HMRC should this prove necessary.
Do claims ever get turned down?
We have a 100% record of successful claims, but have had to defend a small percentage to HMRC. Such enquiries can be triggered by a variety of things - perhaps a claim in an area that HMRC are not used to, or a very large claim compared to the size of company etc. HMRC have their own risk assessment processes, which we believe include a random element.