One of the main reasons cited by companies for not making research and development tax relief claims is that they think the system is too complicated and that claims aren’t paid. While it is true that some claims are rejected, by understanding the basics of the system and working with a company who deals with the claims, you can almost guarantee that your claim will go through by vetting it in the first place.
What are R&D tax relief claims?
If your company undertakes research and development by way of a clear project and is in the area of science or technology, then there is a good chance that the cost of the project can be claimed back from HMRC. These tax reliefs claims can see a substantial rebate to small and medium businesses of 33% of the qualifying R&D costs.
The biggest problem with the system is that there is no clearly defined format for these claims or even a set of documents required to make a claim and this results in confusion and businesses avoiding making a claim altogether. For example, a claim for some businesses might be just a single sheet of paper or even a few pieces of information on their tax return. In other cases, a substantial amount of supporting paperwork is required to make the claim – the bigger the company and the bigger the project, the more paperwork HMRC seem to require!
Because the system is somewhat vague and causes a lot of confusion, there are a number of errors that companies make when submitting paperwork that often results in their claims going wrong.
Understanding the boundaries
One of the most common reasons that companies find their claim rejected is that they haven’t cleared showed to HMRC that the boundaries of the research and development have been clearly set. Even when companies have a complete understanding of the project and the terminology involves, there can still be challenges to the claim if HMRC thinks the boundaries have been set incorrectly.
And worse, sometimes even when boundaries are laid out, HMRC can still challenge things and check into the specifics of activities carried out, whether they were directly or indirectly resolving technical challenges laid out in the plan or whether specific work or activities are part of the project.
For example, while some routine activities are part of the claim or are linked to it, some HMRC inspectors will seek to exclude any costs from before the project started and after it finished. Activities such as market research, intellectual property protection and upfront sales and marketing work can sometimes be excluded so it is important businesses show exactly how this work relates to the R&D to increase the chance of it being accepted
Commercial not technological
Giving the commercial benefits of a project to HMRC as part of the claim is likely to cause problems as this doesn’t convince them the project is technological in nature, rather than a commercial venture. Remember, any project must be in either science or technology so any commercial projects aren’t covered and will be refused. In fact, any commercial considerations to a project will be completely ignored by HMRC.
Therefore, businesses need to show the boundary between their technological work and the commercial work that they do on other projects that aren’t involved with the claim. Getting help to define what work is technological and what is commercial can help overcome this issue somewhat.
Perhaps the greyest area of the scheme involves the people working on the project and more specifically, sub-contractors. Some businesses think that because they have paid for the whole development, then the project classifies as R&D and can be claimed for. However, if the company has commissioned a project that doesn’t use ‘competent professionals’ then the claim is likely to be refused.
Using sub-contractors in R&D projects or sub-contracting out the work is the most complicated area of the tax credit system. And reading the manual on the topic probably doesn’t make it any clearer as there is a lot of emphasis on the underlying facts and their correct representation. Working with a specialist can help resolve these issues and ensure that the work qualifies before it is undertaken.
The R&D tax credit SME system is a complex one and this often puts businesses off from claiming the money that they are owned – fear that the claim will become more trouble than it is worth.
However, using the services of a company such as Easy R&D can simplify the process because we have a comprehensive knowledge of the scheme and a 100% success rate with claims. By using our knowledge to ensure your claim covers all the points and ticks all the boxes, your business can benefit from a sizeable refund or reduction on your tax bill for the work you have done.
Easy R&D have helped hundreds of companies to make R&D tax relief claims. Contact your nearest R&D Consultant to see if you can claim – 0800 195 7516