You’ve invested in developing a product or solving a technical problem. Research and development (R&D) tax relief could help you recover some of that investment by reducing your Corporation Tax bill or providing a payable tax credit.
But investing in development doesn’t automatically mean you qualify for relief.
HMRC needs to understand what you were trying to achieve, why the work qualifies and how you’ve calculated the costs. An error could lead to your claim being reduced or rejected. If relief has already been paid, you could have to repay it.
At Sysum Howard Duggan, we can help you assess your projects and prepare your R&D tax relief claim. Here are the mistakes worth addressing before you submit yours.
Assuming anything new to your business qualifies
To qualify for R&D tax relief, your project must seek an advance in overall knowledge or capability in a field of science or technology by resolving scientific or technological uncertainty. Introducing something your business hasn’t done before isn’t enough.
For example, commissioning software to replace a manual process doesn’t establish eligibility. You need to explain why a competent professional couldn’t readily work out how to achieve the advance using existing knowledge.
The same applies to improving a product. Changing its appearance or adapting an existing design won’t necessarily qualify.
Not explaining the technical uncertainty
Your claim should describe the knowledge available when you started, the advance you sought, the uncertainties you faced and how you tried to resolve them.
Your engineer or developer might have the technical knowledge and experience to provide this assessment. We can work with you to turn that technical understanding into evidence HMRC can assess.
Claiming costs that don’t qualify
Qualifying R&D can form part of a larger commercial project. That doesn’t mean all its costs will qualify.
Let’s say, for instance, you encounter an engineering uncertainty while developing a product. Any R&D work you do to resolve it could qualify. However, related market research, purely cosmetic design and routine production fall outside of the qualifying activities.
Costs such as rent, rates and patents don’t qualify under these schemes. Staff costs need to reflect the proportion of an employee’s time spent on qualifying work. In other words, you can’t include someone’s entire salary just because they contributed to the project.
Using figures you can’t support
You might estimate that an employee spent half their time on R&D. But what evidence supports that estimate?
HMRC allows estimates based on evidence and reason. The problem arises when you can’t explain how you reached the figure or connect it to the work undertaken.
Keep project plans, test results, drawings, meeting notes and records of expenditure. You don’t need an expensive tracking system, but your records should help you explain both the work and its costs.
Missing R&D claim forms and deadlines
If you’re claiming for the first time, or your last claim was submitted more than three years before your notification deadline, you may need to tell HMRC that you intend to claim.
That deadline is six months after the end of your period of account, the period covered by your financial statements. Whether you need a separate notification also depends on your previous claims and whether you submit your current claim before that deadline. Don’t assume you can leave everything until your tax return is due.
There’s also an additional information form, which supports every claim. You must submit this before the Company Tax Return containing your claim, even if you send both on the same day.
Failing to submit a required form on time can mean HMRC won’t accept your claim.
Relying on a previous claim
A claim from an earlier year doesn’t establish that this year’s work qualifies or that the same rules apply.
For accounting periods beginning on or after 1 April 2024, the previous schemes were replaced by the merged R&D expenditure credit scheme and enhanced R&D intensive support (ERIS). The changes also affect who can claim for R&D carried out under a contract and which overseas costs qualify for relief.
Get support with your R&D tax relief claim
At Sysum Howard Duggan, you’ll have access to R&D tax specialists and chartered accountants. We can assess your project, explain what you can claim and help you prepare your submission.
Our support doesn’t end there. We can also help you respond to HMRC questions or enquiries after you’ve submitted your claim. Get in touch for a free, no-obligation call about your project