R&D Tax Credits are a brilliant way for you to cut your corporation tax. If your company is ‘undertaking a project to seek an advance in science or technology through the resolution of scientific or technological uncertainties’ you are entitled to claim up to 33% of your costs back as Tax Relief. The average claim currently stands at around £50,000.
With so much money at stake, it’s hard to believe that so few companies take advantage. Many wrongly assume that R&D Tax Credits are only for high-tech scientific business, but they are wrong. All companies are eligible as long as they’re dedicating resources to innovation in one form or another. The application process can seem daunting at first, so here’s a look at the four most common mistakes and how to avoid them.
1.Not keeping the right records
If you want to submit a successful claim, you’ll have to be meticulous in your record keeping. You’ll need to show how much time and money you’ve spent on R&D activity. You don’t have to create records specifically for the HMRC, but you might need to organise your records differently so you can access the required information easily. For a more detailed look at record keeping for R&D Tax Credit claims, have a look at our previous blog on the subject.
2.Not claiming for all qualifying costs
If you’re going to the trouble of applying for Tax Credits, you might as well make the most of your application. This is not the time to undersell yourself! There are all sorts of costs associated with R&D that you can claim for, some of them less immediately obvious than others. Some are pretty hard to miss- wages for staff involved in R&D for example. But what about the pension contributions for those staff? What about the electricity and raw materials used in the R&D process?
Another common misconception is that you can only claim for R&D activity that was successful. This is completely false. R&D Tax Credits are there to encourage you to take risks, and failure is an unavoidable part of that. According to the HMRC, R&D Tax Credits are available to any company that ‘seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty’. The key word here is ‘seeks’. Your project doesn’t have to succeed; it only has to make an honest attempt to innovate.
3. Claiming for costs that don’t qualify
Unfortunately, it’s possible to take the previous point too far. While you shouldn’t undersell yourself, you should also be wary of claiming for costs that don’t qualify. Although a few companies might try to dishonestly claim Tax Relief they’re not entitled to, most false claims are just the result of confusion over what does and doesn’t qualify. ‘Uncertainty’ is the key word in the criteria. A project is not eligible if its outcome is easily predictable. It must genuinely break new ground. In addition to this, the problem you set out to solve must be one that is ‘not readily deducible by a competent professional’. That is to say, if the solution is one that could have been arrived at by anyone working in the field, the project doesn’t qualify.
If a project is being undertaken for commercial purposes, only certain aspects of the project qualify for Tax Relief. Activities which seek a genuine advance in science and technology are eligible, but those explicitly related to the commercial side of the project, such as market research for a new product, do not.
4. Not asking for help
The road to a successful R&D Tax Credits claim is dotted with obstacles and pitfalls. Don’t go it alone! It pays to hire an expert to help you through the process and to ensure that your claim stands the best possible chance of success. That’s where we come in. We have experts on hand with years of experience who can make sure you’re on the right path from day one. Get in touch today and let’s get started.