In the light of the information from Office for National Statistics report this week that the number of SMEs that have claimed repayable tax credits in respect of qualifying R&D expenditure has significantly increased, we ask Paul Howard how accountants can make sure that their clients are not missing out.
What is R&D relief and how can it be claimed?
R & D relief can be claimed in relation to qualifying expenditure on projects that seek to achieve an advance in science or technology. Companies can claim a refund from HMRC of up to 24.5%of qualifying R&D expenditure or claim a deduction of 200% of qualifying expenditure against profits.
Is it easy to establish that the company is seeking an ‘advance in science and technology’?
The advance in science or technology must extend the bounds of knowledge in the particular field in which the company operates. HMRC need to be satisfied that there is an advance in science or technology, so the nature of the work and particular R&D projects need to be explained in clear terms as part of any R&D claim. An R&D project does not have to be “high tech”, and some apparently mundane activities can involve qualifying R&D.
What about the ‘time cost’ of doing this work, can that be claimed?
Qualifying expenditure includes staff costs, but this cannot include a cost allocation of time spent without actual expenditure. Other costs that can qualify include materials consumed in carrying out R&D, software related to R&D, and other consumables, for example heat and light used in the course of carrying our R&D. There are special rules for subcontracted R&D.
Does the claim have to be presented in a particular way?
A claim for R&D is made within the company’s form CT600, but should be supported by a summary of the R&D projects carried out during the year, and an allocation of qualifying costs to those projects.
In your experience, what are the main reasons that claims fail?
Claims for R&D relief often fail because the company does not adequately identify its R&D projects, or because it claims for expenditure that does not qualify under the terms of the legislation. Capital expenditure does not fall within the enhanced relief for R&D expenditure, but there is a special regime covering capital allowances.
For help identifying companies that can make a claim, the projects that might be eligible and the preparation of the claims themselves contact the TaxDesk on 0845 4900 509 and ask for Paul Howard. Paul