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Your guide to R&D tax credits
Part 4 - How to claim R&D tax credits?

R&D guidance
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This is the final part of our four part guide for accountants that want to develop their knowledge, grow their practice and provide their clients with R&D tax relief services. Companies can also use this to prepare and submit their own R&D tax credit claims.

 

The other parts will cover:

Part 1 – What are R&D tax credits?

Part 2 – Identifying qualifying R&D projects

Part 3 – What costs can you claim for R&D tax?


Introduction

There is a lot of guidance available online for business owners and accountants to help them to understand the rules of R&D tax credits. These guides however only usually cover the basic rules of making a claim such as the rules of SMEs and RDEC claims, qualifying cost and qualifying activities – all topics that I have covered in the previous parts of this series.

 

There is very little guidance available on how to make a claim. As some organisations would prefer to make their own claims, I have decided to create this instruction manual.

 

Technical write up

The R&D tax claim is created in two parts – a technical report and cost schedule. The technical report includes why the project was undertaken, the problem it solves and how it adheres to the legislation.

The guidance in part 2 of this series will help you to identify the qualifying project and qualifying activities. Once these have been identified, you can begin to write the report. Although the commercial aspect is important, HMRC is only interested in knowing that the project meets the definition of R&D.

 

In summary, your report should include:

 

  • The advance in science or technology (achieved or attempted) of the project.

  • Details of the technological and scientific uncertainties and how these were overcome.

  • Information on the people (staff and outsoucee) involved with the project and how these people were competent professionals and why the project was not readily deducible. By providing the qualifications and work experience of people, you can demonstrate to HMRC that the people are competent professionals.

  • Illustrate compliance with the statute by providing details of the following:

    • Details of linked and partner entities

    • Number of staff (including from the linked and partner entities)

    • Turnover

    • Gross assets

    • Receipt of any subsidies or grant


This section (compliance with statute) helps HMRC identify whether the R&D tax costs have been submitted under the correct scheme i.e RDEC or SME.

Costs Schedule

The cost schedule (as you can guess) includes all the qualifying costs of the projects. I have covered these costs in Part 3.

The costs (especially the larger costs of the claim – usually staff and outsourcing) should have a brief description of why it was incurred. For example, for staff costs:

 

David Smith was involved with brainstorming ideas to develop a solution for XYZ and project managed a team of 5 to develop this solution. He was involved with the testing and further development in the project.

 

This description should include activities that directly contribute to the advance in science or technology and qualifying indirect activities (see part 2).

 

Should you have outsourced any R&D work, you should also include whether the claim has adhered to either connected party or unconnected party rules (see Part 3).

Including R&D tax costs into the tax computation and CT600

 

Step 1 – Add to tax computation

Multiply the qualifying R&D expenditure by the uplifting rate of 130% and include this figure in the tax computation as additional R&D expenditure.

 

This figure will be the difference between the 100% claimed in the accounts as an expense and the enhanced expenditure of 230%.

 

Step 2 – Complete the CT600


Put an “X” in Box 650.

 

Enter the enhanced expenditure in Box 660. This is 230% of the qualifying R&D costs.

Box 670 should automatically update to include the enhanced R&D expenditure and any creative enhanced expenditure claimed.

 

Boxes 155 and 780 should automatically update. Box 155 includes the profits after deduction of the additional R&D tax relief, whereas Box 780 would increase losses.

 

Step 3 – Claiming R&D tax credit (only complete if surrendering losses)


To surrender your losses for a payable tax credit, put an “X” in Box 40.

As a reminder, to calculate the maximum permissible payable tax credit, it is the lower of:

  • Trading loss (including 230% of R&D costs)

  • 230% of qualifying R&D cost


The lower amount is multiplied by 14.5%. An example can be found in Part 1.


Enter the payable tax credit amount in Boxes 530 and 875. Boxes 525, 545 and 570 should be automatically updated.
 

Claiming RDEC for an SME


Under certain circumstances, an SME may have to claim some or all of their expenditure under RDEC rules. This would be the case if it received a grant or subsidy or because it is undertaking subcontracted R&D for a large company.

In this circumstance, the RDEC amount is claimed as follows:

 

Enter the expenditure credit figure (12% of the qualifying cost) in Boxes 530 and 880. Box 570 should automatically update.

 

Put an “X” in Box 650.

 

Enter the enhanced expenditure in Box 660. This is 230% of the qualifying R&D costs.

What to submit to HMRC in an R&D tax claim?

  • Accounts

  • CT600

  • Tax computation

  • R&D technical report

  • R&D cost schedule


These documents are sent to r&d.incentives&reliefs@hmrc.gsi.gov.uk. In the subject line, include the company name and UTR. The body of the email should include the company name, which accounting periods the claim covers and which documents have been attached.

 

HMRC usually take between 4 – 6 weeks to process the claim, but it can be longer.


You can no longer get updates on the progress of your R&D tax submission by telephone. HMRC now want requests for updates to be sent by email to r&d.incentives&reliefs@hmrc.gsi.gov.uk.

 

By following this series, most accountants and companies will be able to submit their own simple R&D tax claims. As with all taxes, R&D tax relief is complex and the legislation and guidance is long. 

Further articles will be submitted to cover the more complex aspects of R&D tax relief. Please subscribe to receive these. 

To get a free consultation to check whether your company or client qualifies for R&D tax credits please get in touch at tehsin@growthpad.co.uk.

 

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Tehsin Khan

Tehsin Khan

Tehsin is an experienced tax professional with ten years of experience helping companies and individuals save money. He has worked for the most reputable tax firms in the country before setting up GrowthPad. In his spare time, Tehsin contributes to national tax publications and to date has released three tax books.

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