In this guide we’ve condensed the steps of the R&D tax credits claims process to make understanding the process and applying for R&D tax credit as straightforward as possible.
At Gateley Capitus we believe that there should be no secrets in what’s involved, and everyone should have access to the information required to submit an R&D tax credit claim.
With the added scrutiny on R&D claims, it is important to understand best practice for compiling and submitting qualifying activities in the format HMRC is looking for.
Step 1: Which projects qualify?
To decide on which projects qualify under the HMRC guidelines, you will need to involve the relevant competent technical staff to ensure that the correct level of detail is collected for inclusion in the technical report. Getting expert advice in this area could potentially save you valuable time ensuring that the correct information is gathered first time.
Step 2: Which scheme am I eligible for?
There are two R&D tax credit schemes that you could potentially apply through. The SME (or Research & Development Tax Credit (RDTC)) R&D tax relief and the Research and Development Expenditure Credit (RDEC). The SME scheme lets companies claim back up to 33% of their costs (reducing to 22% for expenditure incurred on or after 1 April 2023). Under RDEC, it’s 13% (and for expenditure incurred on or after 1April 2023 it increases 20%).
The scheme you will need to apply through is based on a range of factors, including your size and whether you are linked or partnered to another business or businesses. In some circumstances you may need to claim through both schemes.
Step 3: Technical report
The technical report is your opportunity to demonstrate in plain English the R&D activities that you are claiming for. You should describe in detail why each project was undertaken, detailing the problems the R&D project intends to solve and how you went about it.
This includes the specific work undertaken, what the current technology is and why this isn’t suitable, what scientific or technical advancement was. It should also prove that the challenges solved by the project could not be solved by competent professionals.
The more challenging a project was, the more likely it is that it had more uncertainty. A failed project doesn’t stop you from claiming – the failure may help demonstrate the technical complexity involved in the project.
The technical report will become a mandatory element of the submission from April 2023 onwards.
Step 4: Qualifying financial information
Your R&D tax relief claim will need to be supported by a costing schedule that allocates qualifying costs to each eligible development project. Again, this is where it’s strenuously advised you use the services of an R&D tax relief specialist as they will make sure your costing schedule is completed correctly and that your claim is correct against the current HMRC guidelines.
R&D tax credit claims can include a range of ‘revenue’ expenditure types, if they actively and directly relate to a qualifying development project. These include:
- labour costs
- subcontracted costs
- externally provided workers (agency workers) costs
- consumed items / materials costs
- utility costs
- software costs
The total of the costs will be your qualifying expenditure, this will be the figure used to calculate the benefit you can receive from the scheme.
Step 5: Submission
The method for claiming the R&D tax credit is through the company tax return (CT600), in some cases an additional CT600L may also be required. These documents and the associated computations will show the effect the claim has had on your tax position and detail the benefit claimed.
If the R&D tax credit claim is being submitted retrospectively, then the CT600 and tax computations will need to be amended and resubmitted.
Should I use a specialist?
The value of using a specialist such as Gateley Capitus is not that we know something that no-one else knows. It’s that we are experts in all aspects of the process and can deliver it more efficiently and more accurately, enabling you to focus on what you should be spending your time on, running, and growing your business.