R&D Tax Credits: Can I file every year?

Innovative

This is a simple one. Yes, you can. In fact, most companies that do file for R&D Tax Credits should be filing every year, because R&D tends to be integral to the way the company operates.

It would be insane to suggest that, for example, Google, having developed its search engine, would stop doing R&D. In the technology world, you keep investing in R&D every year, if you want to stay in the game. The moment the company stops investing in R&D is the moment it starts dying.

What should I say each year?

That said, you can’t file the exact same claim every year. The technical narrative portion of your claim should change to match the new developments that you’ve pursued in the latest year.

If you file the same technical narrative, or one that is not substantially different, you will attract HMRC attention, and rightly. An R&D project might last 2 or 3 years, or even longer, but even if the project lasts that long, the things that are being developed will change and evolve with time. Even decade-long, multi-billion pound projects like the disastrous NHS Programme for IT changed and evolved in scope (and in cost) over time.

So, each year, you should detail what you’ve done that’s new in this year. You’re not supposed to file for pure maintenance costs and customer support. Only new, complex feature developments should count towards the R&D total.

Ongoing R&D percentages

This does mean that projects will probably experience a drop in qualifying R&D after the first phase is over. Businesses will also presumably start investing in non-developers like salespeople or customer service staff, and this will decrease the percentage of the overall expenditure that goes towards the qualifying R&D. It’d be surprising to see a company five years into its life, that is exploiting the product and making good money, and still spending 90% of its effort on development.

That being said, there are some cases where a company can substantially increase its R&D percentage back up, even after operating for decades. This is when the company undertakes a significant effort to upgrade or re-develop the product, because it is no longer commercially competitive. Hopefully that won’t happen to you (because it will typically mean that your business is under threat), but in such a case, it will not be unexpected to find that the R&D percentage increases again.

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