14 Quick wins to get EVEN MORE money back in your next R&D claim
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:
- 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!
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.