R&D tax credits are a valuable benefit for innovative companies in the UK. For much of the past ten years, businesses have been learning about their advantages, and utilising the scheme in increasing numbers.
The downside of this is that it has also attracted sharp practice, with worrying growth in both careless and wilfully fraudulent claims. The Government is taking action: from putting more resources into HMRC, to tightening rules.
It all means that there’s a lot of information out there about R&D tax credits, and a lot of people will tell you different things about them: but whoever says it’s easy is lying.
We’ve talked about the need to be careful with your R&D tax relief claim in a previous blog, but here’s how to give your claim the best chance of success.
Check if you need to pre-notify HMRC
Under new rules, you may need to pre-notify HMRC of your intention to claim R&D tax credits. This affects claims for accounting periods which start on or after 1 April 2023. If applicable, you must do this within six months after the date of the accounting period end.
You need to pre-notify if it is your first ever claim, or you have not claimed for more than three years since the last date of the claim notification period. You’ll also need to pre-notify if you have claimed for the last tax year, but didn’t enter that claim until after the last date of the claim notification period.
(The claim notification period finishes six months after the end of your period of account.)
Keep detailed records
There is no prescribed method from HMRC for keeping records relating to research and development, but there are expectations. These vary, based on your company background and any claims history.
For small, first-time claimants they will not expect detailed records kept whilst you were conducting R&D, as they understand the decision to claim may be retrospective. That is not to say that you should go out of your way not to keep records, as the more information you can provide, the more robust your claim will be.
For repeat claimants and larger companies, there is an expectation that records will be kept.
Good record-keeping will be done in real time (rather than being compiled after the event). It may include timesheets, minutes from meetings where decisions were made, and invoices for materials. As R&D should by definition be pre-planned, it should be possible to put systems in place to capture all of this information.
Know the rules
This is where using a reputable adviser like us really pays. As well as doing the legwork, we also know the rules inside out – and just as importantly, the correct interpretation of the rules.
We say this because, while HMRC is quite specific in what expenditure can be included in a claim (salaries, certain consumables etc), judgement is required to identify what proportions of costs should be applied.
Judgement is also necessary for identifying qualifying work – applying HMRC’s broad definition of research and development to specific projects.
Ultimately, you want you or your adviser to be able to claim for as much qualifying costs as possible, while being able to fully justify them, especially should HMRC push back.
Help preparing robust R&D tax credit claims
As HMRC rightly puts more and more scrutiny on the quality of the R&D tax credit claims they receive, it is more important than ever to get your claims right the first time.
Speak to us to find out how we can help you achieve this with our experienced, skilled advisers.