You can reap benefits when you maximise your research and development tax credit claim
Money makes the world go around – and its no different with research and development. However, while most people think about the long term commercial benefits, there is something a little closer to home which brings a more immediate return. When you learn how to maximise your research and development tax credit claim, the benefits are significant.
HMRC’s R&D Tax Credits scheme provides tax relief and refunds for eligible scientific and technical activities. This means that if your work fits the criteria, you can make a claim towards certain costs including salaries, materials, subcontracted work and more.
Everyone wants as much money back as they can get – particularly when it comes from the tax man. However, no one ever asks us “how can I maximise my Research and Development Tax Relief Claim”? With a little planning, we believe that most regular claimants can increase their claim by a figure in the region of 25%.
This can be advantageous for a few reasons – you can either have more money back, or increase your R&D for the same net cost. Our Radar365 service helps you maximise your claim – here, we help you understand how you can maximise your claims.
HMRC’s gamble to help you maximise your research and development tax credit claim
HMRC provide around £4bn’s worth of relief every year from this scheme – and it’s good for them. So why would HMRC want you to pay less corporation tax?
The answer’s simple. HMRC are more interested in supporting you to develop cutting edge ideas, than they are in taking what to them is relatively small amounts of tax off you. Still don’t believe me? Think about it – they’re gambling in you. You invest in Research and Development, you get better, you sell more, your tax bill increases. They’re a clever bunch, who want a win-win scenario.
They let you invest more in Research and Development now, so your tax bill will be bigger in the future. But you don’t mind, because you’re making more money too! So, everyone wins. Reasonable estimations suggest that on average, Research and Development investment pays a return of 20% year on year.
How do I benefit if I maximise our research and development tax credit claim
Maximising your R&D claim can provide one of two major benefits. These are best explained using a couple of examples:
EXAMPLE 1: Money back at the end of the year
– Project A has a budget of £100k.
– 30% of the project is on eligible (claimable) activities
– On submitting your annual return, you will receive a tax reduction against your corporation tax which would typically save you c. £7.5k.
– So, you’re £7.5k better off when it comes to the end of your financial year.
EXAMPLE 2: More R&D within your projects
– Project B has a budget of £100k (but we’re able to cashflow a little more).
– 30% of the budget was assigned to the eligible technical activities
– You know you can reclaim 25% of these eligible costs, so you’re going to increase your budget for these activities from £30k to £40k (increasing the total project budget to £110k)
– On submitting their annual return, you will receive a tax reduction against your corporation tax which would typically save you c. £10k.
– If you return this to the “pot” from the project your net spend will reduce from £110k back to the original £100k budget.
– So, you’ve benefitted from an additional £10k’s worth of R&D for the same net budget.
Example 1 helps you benefit through a short term financial return, while example 2 provides additional investment in R&D to generate ideas which will provide other benefits. These may include happier clients, greater intellectual property and a better chance of developing a competitive advantage.
So how do we achieve this?
Firstly, we need to understand what comprises “eligible activities” (our website www.randdtaxclaims.com is an excellent starting point!). Making it as simple as possible for the purpose of this read, if you’re performing work which:
- is technically or scientifically challenging
- represents a genuine advance against the status quo
- would challenge another competent professional
… then you’re in the right ball park.
The majority of businesses go about their activities, then at the end of the year spend a few days trying to remember exactly what they’ve done for the purpose of their claim.
But what if we’re able to know what our claim would be way in advance, and plan with this in mind? Would it make a big difference if we made sure what could be eligible, is performed and recorded in the right way? What if we capture every possible eligible activity as it happens so we don’t forget anything at the year end?
You need to be aware that two situations are going to occur. Firstly, there will be activities you know are going to happen, which you can plan with your claim in mind. Secondly, you will encounter opportunities to do ad-hoc eligible work. You need to have a system which captures the right data for both.
So what can you do?
To answer this, I’m going to tell you what we do on our Radar365 programme, which helps clients plan their Research and Development activities to maximise their claim.
STEP 1: Strategic Planning
The first thing we do is think about what you know is going to happen. We run a strategic planning session to let you know what you can and can’t claim. We then address the type of projects and activities you’ve got planned for the year ahead. That way, you can plan your activities in advance, pretty much knowing what your claim and tax credit is going to be. You will also be aware of what you can also claim when you’re forecasting for future projects through the year.
STEP 2: Implementing a data capture system
The next stage is to implement a way to capture all of the activities and corresponding data. We have a series of options which we match to the company culture. These include various styles of spreadsheet, or activity capture forms on A4 which can be later entered into a spreadsheet. The important thing, is that the system has been designed to capture the data required as and when it happens. It has to be quick and easy to enter data, or people won’t use it.
STEP 3: Workforce Awareness
We would then spend a session (or more) advising your key people on what they can claim. Many of them will perform eligible activities, but not know a thing about it – so it goes unclaimed. We need these people to capture the date we need, as soon as it happens. To achieve this, they need to know what system we’re using, how to access the spreadsheet or forms, and how to complete them. When data is entered in a timely manner, it’s more likely to be accurate, and less likely to be forgotten at the end of the year.
STEP 4: Supporting and reviewing
It’s good to have a point of contact for these activities. This person should periodically review the data to make sure it’s eligible, but more importantly, be there for support and advice. This helps people starting new projects know how to plan activities with the end of year claim in mind, but also helps clarify the eligibility of ad-hoc work.
STEP 5 Submit your claim
Your end of year claim now becomes the easiest activity of all. You’ve collated all of your data so all you need to do is give it a quick review to confirm it’s all eligible, then you can calculate your figures and prepare your report. Our bespoke software deals with the calculations and report in less than an hour.
… and it’s honestly that simple.
The only challenging bit is knowing exactly what tasks are eligible with confidence. And we’re happy to help you here too.
Thinking about your planning for your claim in advance can bring many advantages. Least of all, you’re maximising benefits from your planned activities. You’re also capturing all of the fabulous things you do which you may otherwise forget about.
And remember, there are several ways to benefit from this. Firstly, you can translate this tax credit into an end of year financial benefit. Alternatively, you can do more thought the year, but effectively fund the activities with your credit (as long as you can cashflow the activities). Either way, the benefits are clear to see.
So, now you know how to make your projects better, improve your intellectual property, increase your customers satisfaction levels and stay ahead of your competitors at no additional cost. What have you got to lose? Make sure that you give yourself the best competitive advantage and plan your future activities with Research and Development Tax Claims in mind!
For more information on Research and Development Tax Credits or our Radar365 programme, please contact firstname.lastname@example.org or click on the links below:
About our R&D Tax Claims service: RandD Tax Claims – About R&D Tax Credits
About Radar365: R&D Tax Claims – Radar365 Annual Support
HMRC’s page about R&D Tax Credits: https://www.gov.uk/guidance/corporation-tax-research-and-development-rd-relief