Something your clients will never forget is that feeling when their first R&D tax refund hit their bank account! Imagine if you could help them feel that again. The best way to do that is make sure they are as prepared as possible.
We’ve complied 14 quick wins for businesses to optimise their R&D claim. From missed expenses, to record-keeping, to choosing the right R&D scheme; even the way you are paid!
We’re confident there will be something new you might not be aware of…starting with expenses..
7 MOST COMMON OVERLOOKED EXPENSES
Here are seven examples of costs that are commonly missed:
1. Expenses paid on a personal card
We see this time and time again. Here’s an example: A business spends £15k on travel to meet R&D sub-contractors; paid for on a company card. If the travel had been paid on a personal card and reimbursed by the company, they could have claimed back £5k!
2. Expenses when acting as a subcontractor
Easily overlooked and often misunderstood. Subcontractors working as a third party in R&D for a large company can claim expenses under the RDEC Scheme.
3. Expenses delivering work for a customer
Similar concept to number 2. If a business is delivering a lot of R&D work for third parties; they shouldn’t assume the work doesn’t qualify because it is for another company – they need to keep a record of all R&D projects the business is involved in internally and for third parties.
4. Rent bundled into a package
Not everyone knows rent can be included in an R&D claim if it is bundled into a package with say utilities. Clients will appreciate this!
5. Expenses for non-technical support staff
The best advice for staff costs is for businesses to keep a record of all staff involved in R&D projects (technical or not). They might not all qualify but if there are supporting roles involved they may be able to claim money back for the business.
6. The planning stage
Many businesses fail to include the planning stages for R&D projects, thinking it only kicks off when the materials costs kick in for example. But an R&D project doesn’t just start. There is always an element of time invested into preparatory work.
7. Pre-trading expenses in a first R&D tax credit claim
For newly formed companies, they can include qualifying pre-trading expenses in an R&D claim. This isn’t relevant for existing claims but for customers who have setup new companies that could qualify for R&D. Substantial research and development can often take place prior to a company beginning to trade and can be included in the R&D claim. In fact an R&D cash credit can even be claimed before a business starts to trade.
IMPORTANCE OF QUALITY RECORD-KEEPING
It’s vital for businesses to get a grip of good record-keeping for R&D projects, as it can really improve the R&D Tax Relief claim, leading to more money back and a robust audit trail.
8. Review existing systems for record-keeping
A quick win to share with clients for record-keeping is to follow these three steps to analyse what they are doing at the moment and where there could be improvements or modifications:
STEP 1 - Identify the records you can be confident in
STEP 2 - Then determine where you are estimating
STEP 3 - Tweak your systems to give greater confidence
9. Keep a list of R&D projects
Businesses should keep a list of all the R&D projects that they are working on, to make sure no projects are missed, even if it turns out not to be eligible – there could be entire projects that are missed out. TIP: An additional good practice tip to include here, is to keep a record of the advances sought and the uncertainties present before kicking-off an R&D project.
10. Tracking consumable materials
Issuing an in-house purchase order is a great way to track costs of any consumable materials used in R&D projects.
11. Tracking staff costs
Staff costs are one of the key expenses to claim, and so it’s critical businesses evidence the time of those involved in R&D Projects if they want to maximise their claim to the fullest. We recommend incorporating real-time systems for timekeeping, such as Clockify.
12. Subcontractor contracts Now these are important & worth exploring for future R&D claims. R&D claims could be improved by factoring into subcontracting relationships, who can claim the R&D.
Only one party in the relationship will be eligible for the tax relief - both can’t claim for the same project. We recommend putting a contract in place which details who has rights to the claim.
THE COMPANY STRUCTURE
To claim R&D a business needs to be a limited company, within the scope of corporation tax (* but note they don’t actually have to be paying it i.e. loss making companies can claim).
There are then a few things to consider towards ensuring a claim is maximised.
13. Revisit your salary & dividends
Salaries can be included in an R&D claim, BUT dividends cannot. If a Director - heavily involved in R&D projects – is taking a small salary and much higher dividends, it’s critical to revisit how they are paid to maximise the position personally and for the R&D claim.
14. Part of a larger group?
Companies face several pitfalls if they do not plan correctly.
For businesses that are global, they can only claim for UK-based company R&D expenditure.
Bearing this in mind, businesses need to think about where the R&D takes place within the group – who leads the R&D? Who employs the staff involved in R&D? There are some exceptions where you can recharge costs, but not all roles will qualify.
Small companies operating within a large group, should consider the benefits of accessing the higher rate of relief from the SME R&D Tax Relief Scheme. Even sharing just a few tips from this article could have a huge impact on your clients next R&D Claim, meaning even more back for their business!
Radish Tax, Your R&D Tax Relief Service
We work with all our accountant partners to make sure their clients maximise their claims to the fullest. For DTX’ers with a potential R&D Tax Relief client you’d like to discuss please book a scoping call here.
Radish Tax by Diagnostax is a specialist R&D Tax Relief provider. Find out more about Radish Tax by Diagnostax.
Please note, as this blog was published prior to 1st April 2023, there is no reference to the changes which have been brought into place for the R&D tax relief schemes.
For expenditure on or after the 1st of April 2023, the following changes in rates of relief apply:
SME – the Enhanced Expenditure uplift rate has fallen from 130% to 86%; and the tax credit rate has fallen from 14.5% to 10% (exc. R&D intensive loss-making SMEs).
RDEC – the credit rate has increased from 13% to 20%.
Further, data and cloud computing costs can now be included within the claim qualifying expenditure calculation. Pure mathematics now falls within the scope of the relief.
For submissions on or after the 8th of August 2023, it is now required for an Additional Information Form to be submitted prior to submission of the R&D claim. For reference, please see our blog here.