R&D claims for SMEs
Since April 2000, British businesses engaging in research and development work have been able to claim R&D tax credits for their activity. Not only does this give many small and medium-sized companies a much-needed cash injection, it also encourages more organisations to invest in innovative projects, thus keeping the UK at the forefront of scientific and technological development.
SMEs are becoming increasingly aware that their activity may be eligible for tax relief, but the claims process is tricky to negotiate. Here are some tips on what to do to ensure your claim has the best chance of success.
Records and calculations
During the project, keep track of all the expenses incurred that relate directly to the R&D activity. These include wages and pension contributions for those working on the project, utilities such as water and electricity, and consumables. Bear in mind that not all staff will be working on the project all of the time, so you can only claim for those hours spent on the research and development work.
Keeping clear and accurate records as you go makes things much easier when it comes to making the calculations for your claim. Your total costs for the project for the relevant tax year must be added up and your relief calculated. SMEs (businesses with under 500 employees and an annual turnover of less than €100 million) are entitled to a reduction of an additional £130 for every £100 spent; so, if you have spent £1,000 on R&D, your relief amounts to £2,300 additional deduction against profits.
According to HMRC, supporting documents submitted alongside your claim are optional, but in reality these will go a long way to ensuring success. Not submitted supporting evidence could result in a drawn-out process, or in not getting as much relief as you hoped.
Include a short summary of the project that outlines the following:
- How the activity looked for an advance in science or technology
- The uncertainty that had to be overcome
- How the project overcame this uncertainty
- Why it could not be easily worked out by another professional in the field
In addition, you’ll want to submit a breakdown of your costs for the project and how they were apportioned. For example, it’s worth detailing how you worked out the percentage of total staff and utility costs that were apportioned to the activity.
If you used subcontractors or external staff, you can only claim for 65% of these costs. In your cost breakdown, show the calculations for these payments being reduced to 65% of the total.
As we’ve mentioned, the claims process can be complex, so it’s best to seek professional assistance when it comes to submitting your claim. Having an R&D tax solutions expert check your figures and advise on supporting documents can mean the difference between a successful claim and one that falls short of the desired reward. Many specialists will also liaise with HMRC on your behalf during the process. Contact a tax advisor today to begin preparing your research and development tax credit claim.