To optimise your R&D tax credit claim, it’s imperative to set up best practices. This means maintaining sound documentation, financial discipline, technical knowledge, and a thorough understanding of the scheme.
Without adopting best practices, your claim could lack the robustness and accuracy that is required, which could result in an HMRC enquiry. It’s for this reason that a lot of companies choose to claim with R&D tax credit specialists like EmpowerRD.
Regardless of whether you use an R&D specialist or not, following the 5 tips in this article will put you in good stead when it comes to compiling your R&D tax credit claim.
In This Article:
Tip 1: Keep records on R&D projects as you go
Rather than frantically trying to remember everything at the end of your financial year, make sure to keep a record of the R&D projects you are working on. This includes the scientific or technological advancements you were trying to make, as well as the challenges you encountered along the way.
For many businesses, making their R&D tax claim is often an afterthought. However, if you get into the habit of recording details throughout the year, you’ll ensure you have a compliant and optimised R&D claim, without the last-minute stress. We recommending keep a record of the following things as you go:
- What is the R&D project?
- Why you believe it is a scientific or technological advance
- How you’ve tackled scientific or technological uncertainties
- The competent professionals who are working towards the advance
This doesn’t need to be done every week. Each quarter should be fine. Just put a reminder in your diary!
If you work with an R&D specialist, make sure to choose one that has an R&D platform. Companies that have claimed with EmpowerRD find our platform a great tool for keeping records throughout the year. They can log in, note down the technical information, and then get on with innovating. Finally, when it’s time to claim, they already have everything they need on the platform, which drastically speeds up the claims process.
Tip 2: Know what you can and can’t claim for
It can be quite daunting and difficult to know what you can and can’t claim for when making your first claim. Hopefully, our guide to qualifying R&D expenditure can help. Even so, there are still some common mistakes that a lot of first-time claimers make. For instance, many will include expenses that fall outside of their financial year.
When making a claim, ensure the costs you include are aligned with your accounting period, and not the tax year that HMRC uses (this is unless your accounting period exactly matches the HMRC tax year). You will not be eligible to claim for expenses outside of your accounting period.
If you hire a professional R&D advisor, they will be able to walk you through all of your eligible expenses, and perhaps even find some that you didn’t know you could claim for. For instance, when we first worked with Bloom & Wild, we looked back at their previous claim and increased their R&D credit by 290%.
Tip 3: Track all eligible costs
It’s critical to keep track of your eligible R&D expenditure over your accounting period, in the same way that it’s important to keep track of your R&D project’s technical information. Make sure you track every hour and unit of staff and materials. It will make your claim so much faster and you won’t have the stress of trying to remember how much percentage of a staff’s salary you should attribute to R&D. Also, you won’t run the risk of claiming for expenditure that falls outside of the accounting period!
Tip 4: Write a compelling technical narrative
The R&D technical narrative is used to explain how your activities and projects qualify for R&D tax credits. To do this, it needs to demonstrate the complexity of your project, highlighting the technical difficulties and the outcomes achieved. It’s at this point that things start to add up, and if you can’t persuade HMRC, you might end up with an R&D tax enquiry or have your claim rejected.
Writing a compelling narrative for HMRC inspectors is a challenge for someone who hasn’t done it before. This is why a lot of businesses choose to use expert R&D advisors.
At EmpowerRD, we make the process of building a technical narrative much easier. Our intelligent platform eliminates the need for lengthy interviews by capturing your technical data with 4 open-ended questions. You just need to provide a few bullet points for each open-ended question. This also helps it to align with HMRC’s guidance.
Tip 5: Check your claim, and check it again
Lastly, review your R&D claim before you submit it. Don’t be the person who didn’t read the question on the back of the exam paper. Double-check that all your numbers connect back to your Profit & Loss, tax calculations, and the CT600. HMRC loves consistency – make sure all your expenses match and line up so HMRC can quickly see your costs.
Also as part of the recent HMRC changes, you will need to submit an Additional Information Form (AIF) with your claim. The AIF requires company details, R&D intensity, qualifying expenditure breakdowns (staff costs, subcontractors, cloud computing, data licenses, software, consumables) and clearly defined Qualifying Direct Activities (QDA) and Qualifying Indirect Activities (QIA). HMRC are paying close attention to how companies report these activities so accurate and thorough documentation is key.
At EmpowerRD, we’ve built in an integration with HMRC’s Additional Information Form. Using our platform you can enter all the required information in one place, so it’s accurate and compliant. Our tax specialists will also write your technical narrative, removing any irrelevant info and optimising your claim to HMRC guidelines so your submission is robust and compliant.
Remember: thorough preparation = smooth claims and less scrutiny from HMRC!
