Remember that feeling when your first R&D tax refund hit money hit your bank account? Well, we want you to feel this every time you make a claim! How? By making sure you are prepared and maximising every R&D claim.
To help we have complied 14 quick wins to optimise your 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 to consider, starting with expenses….
7 MOST COMMON OVERLOOKED EXPENSES
Here’s seven examples of costs that are commonly missed in R&D claims:
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 you are delivering a lot of R&D work for third parties; don’t assume the work doesn’t qualify because it is for another company – keep a record of all R&D projects the business is involved in internally and for third parties.
4. Rent bundled into a package
You might not be aware that rent cannot be included in your R&D claim…unless it is bundled into a package with say your utilities. If your circumstances change, make us aware, as this could make part of your rent claimable.
5. Expenses for non-technical support staff
The best advice for staff costs is 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 you may be able to claim money back for your business.
6. The Planning Stage
Many businesses fail to include the planning stages for R&D projects, thinking it only begins 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. Include it.
7. Pre-trading expenses in a first R&D tax credit claim
For newly formed companies, you 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 your 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 to get a grip of good record-keeping for R&D projects, as it can really improve your 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 for record-keeping is to follow these three steps to see what you 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
Keep a list of all the R&D projects that you’re working on, to make sure no projects are missed. Even if they turn out not to be eligible – there could be entire projects you are missing out altogether.
TIP: An additional good practice tip to include here, is to keep a record of the advances sought and the uncertainties present before you kick-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 you use for your R&D projects.
11. Tracking Staff Costs
Staff costs are one of the key expenses to claim, and so it’s critical to evidence the time of those involved in R&D Projects, if you are looking to maximise your claim to the fullest. We recommend incorporating real-time systems for timekeeping, such as Clockify.
12. Subcontractor contracts
Now these are important and worth exploring for future R&D claims. Your R&D claims could be improved by agreeing in subcontracting relationships, who can claim the R&D. Only one party in the relationship will be eligible for the tax relief, as you can’t both claim for the same project. We recommend putting a contract in place which details who has rights to the claim.
YOUR COMPANY STRUCTURE
To claim R&D you need to be a limited company, within the scope of corporation tax (but note you don’t actually have to be paying it i.e. loss making companies can claim). There are then a few things you should consider towards ensuring your claim is maximised.
13. Revisit your Salary & Dividends
Salaries can be included in your R&D claim, BUT dividends cannot. If you are a Director – heavily involved in R&D projects – taking a small salary and much higher dividends, it’s critical to revisit how you are paid to maximise your 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, you can only claim for UK-based company R&D expenditure. Bearing this in mind, you 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.
If you are a small company operating within a large group, you should consider the benefits of accessing the higher rate of relief from the SME R&D Tax Relief Scheme.
LOOKING TO MAXIMISE YOUR NEXT CLAIM?
If you’re looking ahead to your next R&D claim, book in a scoping call and let’s make sure you are ready to take your claim to the max.