Recent changes to research and development (R&D) tax relief claims make it easier for qualifying industries to recover expenditure. However, there are still certain aspects that you need to be aware of to avoid missing out on HMRC tax reliefs.
Industries that are typically entitled to R&D tax relief are manufacturing companies and scientific institutions that contribute to the resolution of scientific or technological uncertainty – regardless of whether the project is a success or not. First of all let´s deal with the changes.
- Repayments made by qualifying companies is no longer capped at the PAYE paid in any one period
- The de minimis limits have been removed
- Contractors can be included in a claim regardless of whether they are self-employed or hired through an agency
- Large companies with a turnover of more than €100 million and balance sheet of more than €86 million can request for a capped tax repayment rather than apply for R&D losses.
SME´s and R&D´s
Under the new rules SME companies are entitled to claim an enhanced deduction of 125 per cent of their expenditure. Like large companies they still have the right to surrender an R&D loss for a repayable tax credit. Although HMRC do not request supporting documentation, they do spot check claims so it is best practice to include a breakdown of expenditure – especially older claims. You can make claims dating back to two years.
Together with an overview account of your expenditure, you also need to keep a technical summary. This is a report that details the projects that you are claiming for and explains to HMRC why they meet the rules to claim R&D tax relief. The report needn´t be complicated but must give a summary of:
- The project goals
- The technological or scientific advances you are researching
- An outline of the uncertainties
Submitting your R&D tax relief claim to HMRC
You have two years in which to make a claim for R&D tax relief and should be included in your company Tax Return application after the end of the relevant Corporation Tax accounting period. R&D tax relief is simply claimed by marking box 99 (for SME´s) or box 100 (for large companies) with an X. You also need to put an X in box 101 for enhanced expenditure together with the amount of expenditure you are claiming. To work out enhanced expenditure, multiply the actual amount spent by 225 per cent (for SME´s) or 130% (for large companies.) If you make a profit this figure should also be included in box 3. If you make a loss this figure should be included in box 122.
Claims ordinarily take between 30 and 60 days for HMRC to process. However, you are not always guaranteed to be granted tax relief even if you are entitled to it. This depends on how well you prepare your claim. HMRC do not tolerate inaccuracies and expect at least 70% of the claim to be precise. If you use a professional accountants your chances of recovering tax relief is greatly enhanced.
If you do need help applying for R&D tax relief or would like some advice as to whether you are entitled to make a claim contact Taxaccolega, a low fixed fee accountant in London, on 08000 235 234 or email email@example.com