Research and Development
Research & Development tax credits can seem deceptively simple at times, but there is more to putting in a claim than just calculating your staffing costs and then uplifting it by 130%. It is important to ensure that you maximise the savings/credits you can make, while minimising time and effort by yourselves. Along the way there are some important things to consider.
Are you claiming enough?
It sounds obvious, but while some R&D costs are easy to identify – like your R&D technical staff who spend 100% of their time on R&D – others are easy to miss. Don’t forget about the key decision makers and management who will no doubt have some input, as well as all the staff who support the R&D team. These could be support staff such as admin and IT, junior staff who undertake routine tasks as part of an R&D project, and in a manufacturing business something can often be claimed for production staff who help get a new product from the R&D lab onto the shop floor.
As well as identifying all the people engaged in R&D work, it is equally important to ensure you are claiming the right amount for them. Where detailed timesheet records are available this won’t be a problem, but when estimating the proportion of time spent by staff on R&D it is easy to underestimate the level of R&D being undertaken. It is particularly useful to flip the question on its head – as well as asking how much time does a person spend on R&D, try estimating the time spent on routine non-R&D work. Often you’ll come up with two different figures!
The first year an R&D claim is done, there will inevitably be some estimation done, and some costs will get missed. By putting in place a process for recording time spent on R&D, and other R&D costs, you can ensure that you don’t miss anything and claim the maximum amount possible. We can help you get this set up, to improve claims in the future.
Simplifying the Process
Particularly for large R&D projects, or companies with lots of different R&D projects on the go, it can be a huge amount of work for the company to pull together all of the information. You don’t have to go into great detail on every project, and calculate to the pence on every item of expenditure however. It can be a good idea to just take one or two projects to provide a detailed description of to the Revenue, to give them a sample of the R&D work undertaken. Likewise with costs, it can be possible to come up with a methodology to measure costs on one or two projects or project areas, and apply these to the rest of the R&D work undertaken. This is much more practical than trying to detail everything, will save you time and will make it much easier for HMRC to follow what is going on and approve the project.
In trying to get the best possible R&D claim, it is easy to forget about capital expenditure. While capital expenditure itself cannot be claimed as part of an R&D claim, there is a separate relief for capital expenditure available which gives 100% relief in the year it is incurred. This can be used for any capital expenditure related to R&D, whether it is an electron microscope, a purpose built R&D lab, or even the R&D manager’s Ferrari!
Cash or carry forward
If you are making profits it is relatively straightforward, but if you are making a loss then you have a choice to make – do you carry forward the enhanced losses to save more tax in future, or do you take the slightly less tax efficient route and go for a payable tax credit to boost cash flow? It is important to weigh up all the options. If you later change your mind, you can amend your decision within 2 years of your company’s year end.
It is important to consider any grant income you may have received which is related to R&D, as this could affect your R&D claim. Even if you have a state aid grant on a project, you can still claim under the large company ‘R&D Expenditure Credit Scheme’. It is also really useful to review any decisions regarding taking grants in advance, and we can help you decide which is better for your business, the grant or the R&D relief.