Research and Development Tax Credits: top tips

Research and Development (R&D) Tax Credits for companies in the UK are a valuable incentive provided by the government to encourage innovation and technological advancement within businesses. 

They can be a useful source of finance for a growing company in order that it may continue to innovate and grow.

See also our Spring Budget 2024 coverage of R&D reforms from April 2024.

For a claim under the scheme, the following tips are a useful aide memoire.

Understanding Eligibility Criteria:

The rules are detailed and are subject to change, so it is important to understand how they work and apply to your company’s R&D activities. Your company’s projects need to meet the requirements of the rules and the criteria for eligibility set out in guidance by HM Revenue & Customs.

Since 2023, HMRC also require the submission of an ‘additional information form’ to support any claim.

Your company’s activities should seek to advance the overall knowledge and capabilities in your particular industry.

Keep Detailed Records:

As part of authenticating a claim, the company has to maintain comprehensive documentation of its R&D projects, including project plans, progress reports, and financial records. Clear documentation strengthens your company’s claim and facilitates the review process.

Identify Qualifying Costs:

Keeping detailed records helps to recognise all eligible costs associated with your company’s R&D projects, such as staff salaries, subcontractor costs, consumables, and software expenses.

A claim can be enhanced if the submission provides detailed explanations of not only the technical and financial aspects of the project, but also the nature of the advancement sought and what uncertainties were overcome, together with failures and successes.

Define R&D Projects Clearly:

The scope and objectives of each R&D project should be as clearly defined as possible in terms of both the scope and objectives. 

A well-defined project with a clear link to technological or scientific advancement is more likely to qualify for tax credits.

Separate R&D Costs from Routine Activities:

In keeping detailed records, this should help to differentiate between activities that are R&D from other routine business operations. 

Only costs directly attributable to R&D are eligible for tax credits.

Seek Professional Assistance:

In seeking to compile a claim to be submitted to HMRC that is well put together and is robust enough to stand up to scrutiny, engaging with experienced R&D tax advisors is recommended in order to navigate the complexities of the tax credit process, and to ensure you maximize your company’s eligible claim.

Regularly Review and Update Claims:

A regular review of your company’s activities will help to identify and clarify any R&D projects which could add to your company’s claim. This ensures that you capture all eligible costs over time.

Collaborate with HMRC:

Once a claim has been submitted, it is important to maintain open communication with HMRC throughout the claim process, or with your company’s professional advisors if they are managing the process for you.

Responding promptly to any queries or requests for additional information helps to expedite the assessment.

Consider SME and RDEC Schemes:

There are currently two types of R&D schemes, and it is important to understand whether your company qualifies for the SME scheme or the Research and Development Expenditure Credit (RDEC) scheme, as eligibility criteria and benefit rates differ.

However, the two schemes merge into one from 1 April 2024, so this will remain an issue only for activities before that date.

Plan for Future R&D Activities:

In contemplating a possible claim, you can develop a strategic plan for future R&D projects, considering the potential impact on your business and the eligibility for continued tax credits.

Since 2023, there has been a new advance notification procedure that requires companies to inform HMRC of their intention to make a claim, prior to submitting it.

Although this will mainly be of relevance to any company that is contemplating making its first ever claim, it can also apply where there has been a long period of time since a previous claim.

Forthcoming changes in 2024

In the Autumn Statement it was confirmed that the current Research and Development expenditure credit (RDEC) and small and medium-sized enterprise (SME) schemes will be merged from 1 April 2024 and the rules around the use of nominations and assignments have changed.

This was again confirmed in the Spring Budget 2024.

The government will publish further guidance on the merged scheme and enhanced support for R&D intensive loss-making SMEs ahead of the implementation of the reforms in April.

Contact us

If you have any queries related to accessing the benefits of R&D Tax Relief, please feel free to make contact with a member of our R&D Innovation Team.