How to claim R&D tax credit

how to claim r&d tax credit

On face value, many companies are put off claiming for R&D tax credits. Why? Because they don’t understand the full process, they aren’t sure if they qualify and sometimes it can feel like there are more forms that you know what to do with. 

This is where Veritas Noble can make the process quick and painless for you. 

So when it comes to how to claim R&D credit, what is it, and how do you do it? Let Veritas Noble help you. 

R&D tax credits are one of the tax breaks put in place by the UK government to help a range of businesses. It is possible to claim up to 33% of your R&D costs. Even if your project failed. 

What sets the R&D tax credits apart from many schemes is that both loss-making and profitable SMEs can get back up to 33% of any qualifying expenditure on R&D. For larger companies, they can get up to 10%. 

The R&D tax credits are paid as a negative corporation tax or a corporation tax refund. This will be received at the end of the financial year, and it will be tax-free. It can be used for anything, once it received. From buying equipment to hiring coders. 

Qualification

There are several things that you need to have covered to make an application for R&D tax credits. 

Technology

If it is deemed that the project will give an advance to science and technology, a project will typically qualify. But here are the details:

  • Innovation – new, unheard of or not common
  • Creating of new automate software
  • Scale and performance 
  • Qualifications – smart, competent people, formal qualifications
  • Cost – usually the higher the cost, the more specialist the project and the more likely it was significant R&D

Finances

Money matters here. Even if you meet all of the technical criteria, the finances will come in to play. Here are some of the money bases you will have to have covered. 

  • You have a UK company.
  • That UK company has spent money on building a technology that meets the criteria in the technology section.

Acceptable expenses: 

  • External contractor day rate
  • Staff on PAYE
  • Materials that were used up during the project and could not be resold for the full price
  • Software licenses
  • Money that was spent over your last two completed financial years

How Much Could I Get?

When it comes to the calculations, there are a few things that come into play. How large your company is. Larger companies can get up to 10% back, SMEs can see up to 33%. 

To break that down slightly:

  • If you are breaking even, you may get 15%
  • If you are loss-making, you may get 33%
  • If you are making a profit, you can expect about 25%

An SME is categorised as a company with less than 500 employees, a turnover of less than 100 million and a balance sheet of less than 86 million. 

How To Claim R&D Tax Credits

First things first. You should speak to a team member from Veritas Noble, they will be able to tell you if you meet the criteria for the R&D tax credits. In most cases, many UK-based businesses worry that they don’t meet the requirements, or they are unclear about how to apply for it. 

In order to apply, you will need to ensure you have filled in the right boxes on your CT600. This form is the one that you submit to HMRC every year with your accounts. File the CT600, or refile if you are making a claim for years that you had already submitted. This will need to be accompanied by a Technical Narrative. 

A Technical Narrative will explain your project, the features, any challenges that you have faced during the R&D process. This needs to be from a technical viewpoint, not a managerial one. HMRC need to see that the work you are undertaking is technical, in-depth and complicated – so show them. Look to have up to 5 pages and encompass 1-3 technical projects. Highlight the key areas. 

Include a clear table of all the financial calculations. This will be the justification for what you have spent and what you have claimed. Both your financial calculations and your Technical Narrative need to make sense and work together. 

Your CT600 is where your R&D claim figure will go. If you put it in the wrong place, it will impact the whole form. And this will likely trigger an HMRC inquiry. It can be beneficial to file your accounts as usual and then file an amendment tax return with the R&D claim directly to an HMRC R&D specialist unit that includes the original tax document. This means that your R&D claim is likely to be seen by a specialist who knows about R&D. 

You should make sure that all of your figures make sense. Filling in something incorrectly could throw your business in to question, and you will need to clear that up swiftly. 

The point of these details, it to clearly show to HMRC that you have:

  1. Understood the criteria for R&D credits
  2. Have applied after meeting all the criteria

Next Steps For Your R&D Claim

If you are ready to be one of the many companies who are benefitting from research and development tax credits, then you’re in the right place. R&D is not as straightforward as many companies hope, and filling in the forms incorrectly, or not managing to create a Technical Narrative that illustrates the real work can leave you with an HMRC inquiry, or being asked for anything that is ‘missing’. 

In order to complete your claim for R&D tax credits with as much detail as possible, and therefore meeting all of the criteria laid out by HMRC, you should consider working with a specialist like Veritas Noble. We have over 25 years of experience, ensuring that UK businesses get what they are entitled to. In real terms that is over £3 million in R&D credits, and a 100% track record. 

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