You can claim R&D relief by entering the total qualifying expenditure on the full Company Tax Return form, CT600.
However, many companies fail to qualify their claims with a narrative report and most of the narrative reports submitted don’t include sufficient validated evidence to substantiate the claim.
This can be problematic as the tax inspector may carry out an audit of the claim in subsequent years. Keep good records, also provide irrefutable evidence of the R&D.
Under the SME scheme, SMEs that prepare their accounts on a going concern basis may be able to claim a payable tax credit.
It is recommended that you seek professional advice before submitting a claim, as professional advisors can add significant value to any claim.
What costs are included in a claim for R&D tax credit ?
Your company can claim for salaries, wages, class 1 NIC, and pension fund contributions for staff directly and actively engaged in the R&D project.
This covers employees who undertake ‘hands-on’ R&D work and the proportion of supervisory and managerial time spent specifically directing such employees in those activities.
Support staff costs, for example, administrative or clerical staff, do not qualify, except when they relate to qualifying indirect activities. These can be activities like maintenance, clerical, administrative, and security work.
A more detailed definition of support staff costs at:
Your company cannot claim for employment-related benefits.
R&D expenditure subcontracted to other persons is generally not allowable unless it is directly undertaken by a charity, higher education institute, scientific research organisation or health service body — or by an individual or a partnership of individuals.
These are the staff costs paid to an external agency for staff who are directly and actively engaged in the R&D project — these are not employees and subcontractors. Relief is usually given on 65% of the payments made to the staff provider. Special rules apply if the company and staff provider are connected or elect to be connected. These are the staff costs paid to an external agency for staff who are directly and actively engaged in the R&D project — these are not employees and subcontractors. Relief is usually given on 65% of the payments made to the staff provider. Special rules apply if the company and staff provider are connected or elect to be connected.
Your company can generally claim for 65% of the payments made to unconnected parties. The subcontracted work may be further subcontracted to third party. Special rules apply where the parties are connected or elect to be connected.
How much might a R&D tax credit claim be worth?
It all depends on the projects undertaken. R&D relief allows companies that carry out qualifying R&D related to their trade or profession to claim an extra Corporation Tax (CT) deduction for certain qualifying expenditure. The level of relief available depends upon which scheme the company uses.
To find out if a company is an SME for R&D tax relief purposes HMRC look at:
• staff headcount (less than 500); and
• either turnover (€100m) or balance sheet total (less than €86m).
From 1 April 2015, the relief that a company can get has increased to 230% on their qualifying R&D costs. Loss-making companies can in certain circumstances surrender their losses in return for a payable tax credit. One SME that we represented received £94K in a single claim. Most claims are smaller. Other clients have yet to submit a qualifying claim. However, we support all of our clients, assisting them to define and identify qualifying activities.
Companies with no CT liability will benefit from RDEC either through a cash payment or a reduction of tax or other duties due. The payable credit is limited to the company’s PAYE/NIC liabilities of the staff engaged in qualifying activities in the accounting period.
SMEs will be able to claim RDEC if they do subcontract or subsidized research. Companies in groups can surrender the RDEC against another group company’s
From 1 April 2015 a taxable credit is available at 11% of qualifying R&D expenditure. For loss making companies the tax credit is fully payable (subject to certain restrictions).