It’s great that you have decided to make an R & D Tax Credits claim; only about 10% of companies are requesting their entitlement. Considering the inaccessibility of the scheme’s terms, this is hardly surprising.
The current R & D legislation is well known for being complex, even to non specialist accountants.
1. HMRC don’t understand why your claim is eligible
After translating the regulations into more understandable language, you then have to apply them to your specific business. The onus is on you to explain any scientific or technological advances you are working on and identify specific R & D spending. Clarity is crucial. If HMRC don’t understand your project’s supporting report then they cannot sanction your R and D claim. The key is to keep it as simple as possible, without losing any of the essential information that demonstrates the project’s eligibility.
2. Grant funding that impacts on your R & D total
It you spend any government grant money on your R and D project then it automatically falls into the large company scheme category. This matters because it seriously reduces how much your R and D claim is worth. This is worth bearing in mind before you start your project, during the funding discussions.
3. Absence of subcontractor contracts
You are fully entitled to claim the costs paid to subcontractors for work on R and D contracts. But you do have to be able to prove what proportion of their time was spent on R and D work, in the event of an HMRC inquiry. The easiest, most conclusive way to do this is by having subcontractor contracts that specify their employment for R and D purposes. This is not an HMRC requirement, it’s our top tip to finding the simplest way to back up this part of your claim.
4. Making an honest mistake
As with all things ‘tax’, there are consequences to making any mistakes on your paperwork. For example, if you have mistakenly claimed for an R and D cost you are not actually entitled to, HMRC can ask for their money back. They have not set a time limit on themselves for this, so it could be years later that they start an enquiry and come knocking for a repayment.
5. Not maximising your R and D claim
Considering the potential consequences of making (even legitimate) errors, it is wise to be circumspect with your R and D claim. But being overly cautious can easily result in you missing out on eligible costs. Some people simply don’t know that certain R and D expenditure can be included; it is a tricky roadmap of rules to navigate.
R and D tax credits guide
The worth of a and R and D claim can be extremely valuable to any company but their are strict deadlines which have to be adhered to avoid missing out. Our free research and development tax credit guide is a great place to start finding out more about what can and cannot be done.
