So, you’ve filed a research and development tax claim - nice work. Better still, your claim was successful and you’ve received R&D tax relief. But what if we told you that you could have received more?

Portrait of a young woman covering her mouth with palm and looking away over gray background

Unfortunately, this scenario is far from uncommon.

That’s what makes understanding how to maximise your R&D claim vital, so you can secure more funding and increase your company’s potential for growth and innovation.

Today, we’ll be giving you the secrets to optimising your R&D tax claims, helping you to maximise the amount of funding you’re entitled to. With some strategic tweaks to your internal processes and operations, you could begin reaping the rewards sooner than you think.

Know your grants from your tax credits

First things first: it’s key to differentiate between grants and R&D tax credits. In short, if your company has received grant funding, it may affect your R&D claim.

It all depends on whether or not your grant directly contributed to the R&D project you’re claiming for. If it did, it then depends on the type of grant:

  • Notified state aid: if you have received this type of grant and it has had a direct impact on the project in question, you won’t be able to claim R&D tax credits through the SME scheme. You can, however, still claim a restricted amount of your development costs through the RDEC scheme
  • Non-notified state aid: if you’ve received this type of grant, the eligibility of your project will be subject to how the grant contributed to its funding

If you’ve received a grant but it had no direct contribution to any expenditure featured in your R&D claim, then good news - this won’t affect the amount of tax relief you could be entitled to.

If you received a grant but it only partly contributed to your R&D expenditure claims, you may be able to claim through a combination of the RDEC and SME schemes. Get in touch with our experts today for more information on this. With the right strategic know-how, your company could benefit from both grants and tax credits - providing a welcome increase in cash flow for any business.

Set your records straight

Best-practice R&D tax claims and good internal record keeping go hand in hand.

This makes embedding thorough internal processes key to optimising your claim.

Start with your staff costs - an important aspect of any R&D tax credit claim. Whether it’s monthly payroll or shift-based clock-in systems, your business will already have some form of staff records. These often do little in providing the sufficient detail needed to claim back expenses, though.

Instead, shift to a record-keeping system that properly tracks the time your staff are spending on eligible R&D activity. This more focused approach to time tracking will assist you greatly in filing a more accurate and robust claim when the time comes.

Elsewhere, be sure to keep sufficient records of other eligibility variables - think consumables and uncertainties, for example. It’s also worth maintaining a list of all projects worked on throughout the year. Even if you think these aren’t eligible R&D projects, you may be wrong and therefore missing out on an opportunity to further maximise your claim.

Familiarise yourself with the criteria

It goes without saying that, to properly maximise any claim you file, you need to understand which boxes need ticking.

Don’t underestimate the importance of this process. While you naturally want to file for as much as possible, incorrect claims can be a red flag in the eyes of HMRC and can result in your claim being delayed. Being confident that you’ve met the necessary criteria is paramount.

Costs eligible for subsidisation through R&D tax claims are known as ‘qualifying expenditures’. We recommend consulting this handy blog post first to familiarise yourself with the fundamental criteria, before heading over to the UK government’s official guidelines here.

Remember to always work within your company’s financial year, as opposed to the HMRC tax year.

Newly formed businesses may be unaware that they should factor any pre-trading qualifying expenditure into their claim, too. This is because it’s common for research and development to take place long before a company begins to trade. And good news - these costs are able to be included in your claim and are often subsidised through cash credit.

Don’t forget about external workers

If you’ve outsourced any activity pertaining to your R&D project, it’s crucial that this is thoroughly documented from the off.

HMRC defines outsourced workers within two categories:

  • Subcontractors - outsourcing a section of your project to another company
  • Externally provided workers (EPWs) - temporary workers sourced from an external agency to provide a project-specific service

This is particularly important if claiming under the RDEC scheme, as, often, you’ll only be able to include EPWs in your claim.

To maximise your claim further still, be sure to pay close attention to your subcontractor agreements. Both parties are eligible to claim for qualifying expenditure themselves, but the same project can’t be claimed twice (by two parties). Clarify this with your chosen subcontractor from the outset to avoid any future complications, funding restrictions or conflict.

Understand your structure

Ensuring your company is properly structured also contributes to qualifying for maximum R&D tax funding.

Starting with the basics, you need to file as a limited company (and be paying corporation tax) to be eligible to claim.

Sounds simple enough, right?

It can get a tad more complicated than that. For example, not all small businesses will qualify under the SME scheme. This is because small businesses can be a part of larger umbrella organisations - and in these instances, the respective companies may be considered linked.

If the companies are deemed to be linked, the finances and resources of the entire umbrella business must be taken into account when determining your company’s size. Of course, this can have a significant impact on what and how you claim.

It can be tough to understand whether your company is linked in the eyes of HMRC. As a rule of thumb, your company will be considered linked if any of the following applies to you:

  • Over 50% of capital/voting rights are owned by another company
  • Another company is able to hire or remove any employees within your management team
  • Another company is able to exert ‘dominant influence’

External businesses that have a 25-50% stake in your company are considered ‘partner enterprises’. However, you could still be considered an autonomous company, providing the external company exercises no element of control. This is true in the following cases:

  • Venture capitalist and public investment
  • Universities and non-profit researchers
  • Institutional investors
  • Autonomous local authorities

Understanding where your business falls within these parameters will ensure you’re filing under the right scheme and optimising your claim to maximise its value.

Don’t underestimate your technical narrative

When filing your R&D tax claim, you’ll be asked to provide a technical narrative.

This is your chance to prove the worth of your project, demonstrating that you’ve ticked all of the right boxes. As such, it’s important you get this aspect of your claim right to maximise your return.

This doesn’t require you to write a novel. Balance the length of your narrative with the size of your claim, but be sure to include all of the necessary detail to ensure HMRC is able to gain a complete picture of your activity.

Here are some quick and easy tips for a technical narrative primed to maximise a claim:

  1. Write from a technical point of view.
  2. Keep it simple.
  3. Avoid buzzwords and industry jargon.
  4. Don’t avoid mentioning failures.

Check, check and check again

Like with any of your business’s finances, never underestimate the power of proof-reading and cross-referencing.

Upon completing your claim, go back through it and scrutinise every detail - it could be the difference between receiving extra funding and having your claim fall on deaf ears.

One of the most important aspects of this process is cross-checking your calculations. Do your numbers match those featured on P&L statements and CT600, for example?

Harmony among your financial records makes it far easier for HMRC to identify and associate costs, while inconsistencies in these records can raise major red flags. It pays to triple check your claim - quite literally.

Seek a helping hand

As this post proves, there’s a lot that goes into a successful R&D claim. A strategic approach to optimising your claim is your best chance of maximising the value - and who better to help you with that than the experts?

By recruiting a helping hand with your R&D tax claim, you’re not only ensuring all qualifying activity is properly included - you’re also ensuring that said activity is presented in the best possible way.

R&D tax claim advisors have years of first-hand experience with R&D tax claims and understand what it takes to secure financial relief. They know what HMRC is looking for - and where they’re looking for it.

Considering seeking professional help to ensure your R&D tax claim is primed for success? Luckily, you’re in the right place. Get in touch with Lumo today - we can’t wait to hear from you.

Subscribe Here!

Recent Posts