Our six-step breakdown of the R&D Tax Credits claims process. Confused about how to claim? You’ve come to the right place!
This may be a surprising article to find on the website of an R&D Tax Credits specialist. But at GrantTree we believe that everyone should have access to R&D Tax Credits.
Even if you don’t choose to file with us!
If you do want to file for R&D Tax Credits yourself, we highly recommend our Simple Guide to Claiming R&D Tax Credits.
It offers easy-to-follow, step-by-step instructions for calculating your eligible expenses, writing your technical narrative, and filing your CT600.
Looking for more of an overview? Then read on!
But before you do, don’t forget to sign up to our newsletter, where we share all our latest tips and tricks for filing for R&D Tax Credits.
The six steps to filing a claim
You may have already read up on which companies can claim R&D Tax Credits. If you think you’re eligible and are planning to file – great!
There are six steps to filing an R&D Tax Credits claim:
- Selecting your projects
- Working out which scheme to apply to
- The financials
- The technical narrative
- Completing the CT600
Step 1: Selecting your projects
First, you need work out which projects you’re going to claim for.
Generally, we suggest breaking up your development work into 3-5 projects. This keeps things simple for HMRC.
Step 2: Working out which scheme to apply to
R&D Tax Relief is made up of two schemes: the SME R&D Tax Relief and the Research and Development Expenditure Credit (RDEC).
The SME scheme lets companies claim back up to 33% of their costs. Under RDEC, it’s only 13%.
The scheme you apply to is based on a range of factors, including your size and whether you are linked or partnered to another business.
Read more about the two schemes here.
Step 3: The financials
Once you’ve worked out which scheme you’re applying to, it’s time to look at the finances.
In your financials, you have to work out the size of your claim by adding up all your eligible costs, and apportioning them to your development work.
Here is a full list of the costs you can claim for, and how much you can claim under the two schemes.
For many companies, the biggest expenses are labour, subcontractors, and consumables (i.e. software licenses or prototype materials consumed in the R&D process).
After you add everything up, you’ll have your total qualifying expenditure. This is the headline figure in your claim.
Then, if you’re claiming under the SME scheme, you should increase your total qualifying expenditure amount by 130%. This is called ‘enhancement’.
Enhancing your total expenditure gives you your enhanced expenditure – the figure you should actually claim for.
Enhancement might look like some dark accountant saucery, but it’s how the scheme works.
Claiming under RDEC? Sadly, there is no enhancement.
As always with HMRC, there are many costs which are open to interpretation – from both HMRC and the company claiming. So, if you are in doubt, it is better to go with a specialist who will know whether or not costs are qualifying.
Step 4: The technical narrative
The technical narrative is your chance to demonstrate, in layman’s terms, exactly what work was undertaken, along with any challenges you faced along the way.
The more challenging a project was, the more likely it is that it had a bigger degree of uncertainty. Even if your project failed, you may still be able to claim the costs back!
Technical narratives should be between 2 and 5 pages of A4, covering however many of your projects make up at least 50% of your total R&D expenditure. There are many nuances in writing a solid technical narrative.
But the bottom line is that this is your chance to shout about what you did, why you did it and (most importantly) how you did it. Submitting a technical narrative isn’t mandatory. But it will greatly reduce your chances of receiving an HMRC enquiry, which could delay your tax credits by several months.
Step 5: Completing the CT600
Completing your CT600 is a simple matter of plugging your financial calculations into the right boxes.
How you do this depends on whether you’re applying for the SME or RDEC scheme, and whether you’re claiming corporate tax relief or the payable tax credit.
For in-depth instructions, check out our blog: Preparing the CT600: The Last Piece of the Jigsaw.
Step 6: File!
Almost there. All you need to do now is combine your updated CT600 with your technical narrative and financial calculations (best to put these into one document).
Then send it all off to HMRC!
Are you an edge case?
Like any other part of the tax code, the R&D Tax Credit scheme is filled with nuances and edge cases.
Companies that are unprofitable, that have recently taken on new investment, and that subcontract out work all receive different treatments under the scheme, and must therefore file slightly different claims.
Those are just a few examples.
If you’re filing yourself, make sure you are familiar with the ins-and-outs of the Corporate Intangibles Research and Development Manual, or ‘CIRD’ for short.
The CIRD contains all the rules and regulations governing R&D Tax Credits. It’s the scheme’s bible, if you like.
Comparing your situation against the CIRD is deeply important. Filing an illegible, inaccurate, or even unclear claim could lead to a time-consuming HMRC enquiry, which could damage your company’s relationship with HMRC going forward.
If you’re not sure about any aspect of your claim, or don’t have time to file a claim yourself, the best thing to do is file with a specialist.
Should I use a specialist?
The value of using a specialist like GrantTree is not that we know some special secrets that no one else knows.
It’s that we are experts at every aspect of the process and can deliver it better, faster, and probably cheaper than you, enabling you to get back to what you should be spending your time doing: running and growing your business.
If you’re interested in a little expert help, just click on the link below and we’ll be right with you.