Research and development opportunities can be lucrative for your business.
Thanks to the UK Government’s R&D tax relief scheme - with credits amounting to up to 33p per £1 spent - eligible businesses can utilise the scheme for transformative funding towards innovation.
If you’re a business in any sector creating new products, processes and services (or modifying existing ones), you may well qualify for funding.
But HMRC isn’t going to come to you.
This makes being proactive key to any successful R&D claim. Of course, this starts with recognising that your project is eligible in the first place. Are you:
- Operating in a specialist or niche market?
- Employing specialist or technical staff?
- Operating in a regulated industry?
- Facing scientific or technical uncertainty?
If you answered yes to any of the above, you may be undertaking an eligible R&D project. You’d be surprised just how much ‘everyday’ activity can qualify for R&D tax relief, particularly if your business is regularly working in the face of uncertainties.
In a nutshell, it’s all about knowing what HMRC are looking for, and showing it to them. But how can you ensure this same proactivity from project to project, year after year?
Today, we’re exploring how you can ensure your business remains proactive in its pursuit of R&D by paying special attention to your strategy and accounts.
To keep your company at the forefront of its industry, your R&D strategy must be suitably equipped for the rapidly-evolving modern world.
Failure to be proactive in modernising your R&D approach means many businesses lack the clarity, agility and conviction needed to properly achieve their innovation objectives. As a result, R&D can often end up being excluded from corporate priorities and out of sync with the business’s growth.
For any business looking to champion innovation, this simply won’t do.
So, look to proactively modernise your R&D strategy. To do this, familiarise yourself with the most common challenges, and consider how you’ll overcome them:
- Acceleration of innovation cycles: the evolution of software and automated applicable technologies has seen corporate innovation spurred significantly. The same is true of the public sector, with well-funded start-ups developing and rapidly scaling innovations that threaten to upset the status quo. This creates an increase in investor scrutiny surrounding research spending, resulting in more pressure to reap faster results
- Isolation: the complexity of many R&D projects, combined with regular use of specialist lexicon and processes, makes it difficult for teams outside of your R&D department to understand the ins and outs of a project. This can lead to R&D being isolated from the company, with investors paying closer attention to ‘safer’, faster yielding avenues. R&D can quickly slip down the list of corporate priorities as a result. Further still, this can create problems in cross-department collaboration, which may affect the efficiency of your project
- Few accountability metrics: across many industries, R&D departments lack mechanisms to effectively measure and communicate progress. When failure translates into experimentation and success translates into patents - not profit - it can be hard to quantify your R&D contributions
Keeping these common challenges in mind before pursuing any R&D project will minimise the number of hurdles further down the line, maximising the value of your claim.
Use these challenges to inspire a proactive R&D strategy that answers three key questions:
- What will you deliver?
- What do you need to deliver it?
- How will you deliver it?
Following these steps will help you to instil a culture of R&D within your company and create a more conscious and strategic approach to identifying and pursuing research and development opportunities.
And let’s not forget the books. To really ensure an optimised, forward-thinking approach to R&D, it pays to be proactive with your accounting, too.
Identifying the full scope of qualifying costs is essential to maximising your claim. First, ensure you understand the types of costs you’ll be expected to record - the primary categories include:
- Staff: the members of your workforce on your payroll
- EPWs: externally provided workers from a third-party staff provider, such as staffing agencies and personal service companies, or a hired freelancer
- Subcontracts: outsourcing of qualifying R&D projects could be eligible for up to 65% of relief under an SME R&D tax credit claim
- Consumables: materials consumed or transformed in the pursuit of overcoming scientific uncertainty
Keeping these in mind before embarking on any R&D project enables you to collect the required documentation and record the required data throughout. This ensures that proper record keeping is in place from the off, minimising disruption and maximising your claim’s chances of success.
Of course, when it comes to accounting and filing an R&D claim, there’s only so much that can be done proactively. Certain parts of your claim won’t be able to be completed until the project has come to fruition or been completed altogether.
But you can still be proactive in familiarising yourself with criteria, rules and regulations surrounding cost. R&D claims aren’t always straightforward, so it’s well worth getting to know how to overcome common roadblocks before you face them. Not only will this minimise disruption further down the line, but it’ll also maximise the efficiency of your project and the value of your claim.
Some common examples of roadblocks you may encounter include:
- Understanding how to qualify costs of subcontractors
- Understanding the rules surrounding ‘connected parties’
- Accurately determining who can claim in multi-party projects
- Calculating claims for loss-making and profit-making businesses
It’s all about preparing your business for a variety of potential outcomes by learning how to maximise your claim from day one.
If you’re looking to become more proactive in the pursuit of research and development, one of the best moves you can make is recruiting a professional. Get in touch with Lumo to learn more about how we can help you identify more opportunities and maximise their value.