Now that you have read the R&D Tax Credit Rules, it’s time to look at the process of claiming R&D tax credits.
How does it work?
The R&D tax credit scheme is an HMRC incentive designed to encourage innovation and increased spending on R&D activities by companies operating in the UK. The Government wants to make the UK the most attractive place to start and invest in innovative companies. First introduced in 2000 for SMEs initially, this is not a new form of tax relief, although the rate of relief has become much more generous in recent years.
In 2002, a similar (though less generous) system was introduced for large companies, followed by the Research & Development Enhanced Credit (RDEC) scheme for Large Companies was introduced from 1 April 2013.
“Until we discussed R&D tax credits with mca, we were not aware what benefit they could bring to us. mca’s creative approach, and suggestion that we clearly split our reward between the different roles we have in the business was instrumental in us being able make a significant claim”. Co-Founder of TSC
Our unique approach to claims
Many people assume that a successful claim relies on the numbers alone. This is far from the case. Our approach comprises three stages:
1. The narrative element
By asking the right questions, the mca team discuss with representatives from the company the projects being undertaken and the advancements in science or technology made. As a result of these discussions, we write a detailed report to accompany the R&D tax credit claim which addresses the full key criteria set out by HMRC in order to demonstrate that the activities qualify for R&D tax credits. This report is updated on an annual basis for changes in the company’s activities during the period in question and new projects being worked on.
2. Collating the numbers
Working with the company’s finance team, we identifiy the associated expenditure involved in R&D, and where necessary, apportion expenditure between that which qualifies and that which does not qualify. The rate of R&D tax credits has changed a number of times in recent years, and we therefore split the expenditure into the appropriate time periods so as to apply the correct percentage uplift to this expenditure. We ultimately arrive at a total figure for qualifying expenditure that feeds into the company’s self-assessment corporation tax return.
3. Submission and agreement with HMRC
Having completed the narrative report and collated the numbers, the company’s self-assessment tax return is submitted to HMRC. Where necessary, an amended corporation tax return is submitted that the company has already filed its accounts and tax computations for the period in question. Whilst in the majority of cases HMRC does not question the R&D tax credit claim, where it does, then we will deal with those enquiries on behalf of the company in order to ensure that the claim is agreed. Where necessary, a member of the mca team will meet with HMRC and representatives from the company to explain in more detail the nature of the qualifying activities and how the numbers are obtained.