It’s easy to get caught up in all the hustle and bustle of research and development.
At particularly frantic times, your R&D tax credit claim often becomes an afterthought - and this can negatively impact the amount that’s subsidised in the long run.
So, before you jump into your business’s next R&D venture, hold your horses and read this post first.
Today, we’re exploring 4 key reasons it pays to take the time to plan your research and development properly.
By rethinking your approach to planning, you can help your business’s R&D become more strategic, purposeful and, ultimately, profitable.
Avoid costly eligibility errors
Approaching research and development with all guns blazing is a risky game when you’re going in blind.
Without the proper time and structure in place to familiarise yourself with the UK Government’s eligibility criteria and any qualifying costs, you could find yourself entitled to less than you’d originally expected.
Worse still, in some instances, you may not be entitled to any R&D tax credit funding at all. This can have particularly drastic financial consequences, especially if your research and development isn’t successful.
Taking the time to properly review your planned research and development in line with eligibility criteria, on the other hand, pays dividends.
Remember: there are eligibility rules surrounding both the company claiming and the activity they’re conducting, so make sure you’ve considered both before proceeding with any R&D.
First, your business must meet these basic criteria to be eligible for tax credits:
- It must be a UK limited company that pays Corporation Tax
- You must have invested in qualifying research and development projects
Note: public liability companies, partnerships and independent traders do not fall within this criteria.
The UK Government’s definition of research and development is deliberately broad in order to be flexible across a diverse range of industries - but as a rule of thumb, it’s activity that:
- Aims to innovate a new product, operation or service
- Aims to innovate a modification to an existing product, operation or service
Providing you tick all of the above boxes, your business can enjoy peace of mind that it will be entitled to claim subsidisation on:
- Staff salaries (including NIC, pension contributions and any expenses)
- Materials and consumables used throughout the project
- Clinical trials
- Freelancers and subcontractors
Maximise your claim
The importance of mastering your record keeping when claiming R&D tax credits is often undervalued.
This is because, in theory, formal record keeping isn’t a requirement of qualifying R&D claims. It just makes life that much easier for everyone involved - yourself included!
The success and maximisation of your claim are dependent on your ability to provide sufficient evidence of associated costs and qualifying activity.
This includes the necessity for a technical narrative, where you’ll be expected to provide a detailed account of your project, including:
- The purpose of the project
- The desired outcomes of the project
- The ‘scientific uncertainty’ tackled
- The scientific or technical advances achieved
- The benefits provided to the wider industry/field
- The reasons for success or failure
- The research and development that was conducted
It’ll come as little surprise to learn that all this can be tough to recollect retrospectively. This can easily lead to inaccuracies and holes in your claim, which could result in you being entitled to a lower sum.
Putting proper planning in place before embarking on your research and development ensures you’re collecting all of the right information (at the right time) to maximise your tax credit claim.
You can find out more about how to do this in this handy guide.
Manage a pipeline
Research and development provide businesses big and small with the opportunity to evolve through innovation.
As such, many businesses have an R&D pipeline - a scope of short-term and long-term research and development that’s representative of the company’s future ambitions.
Successfully managing this R&D pipeline can be integral to a company’s growth. But, in the face of so much technical and practical uncertainty, this is no easy feat.
R&D pipeline managers must work meticulously to find an equilibrium between the abundance of R&D opportunities and the limited resource of their business, creating a pipeline that’s suitably optimised for a worthwhile risk-reward.
Of course, this strategic pipeline management needs proper planning. This means putting together an achievable yet ambitious roadmap by breaking down everything from budgets and costs to objectives and priorities.
Proper planning is key to smooth and strategic pipeline management, making R&D planning integral to bolstering a company’s growth potential.
Seek advice (at the right time)
The secret to maximising an R&D tax credit claim (regardless of the success of the project) lies in knowing exactly what HMRC are looking for.
This is why so many businesses seek R&D tax advice and guidance - after all of their hard work conducting R&D, businesses don’t want to fall at the final hurdle by making an insufficient claim.
Specialist R&D advisors are able to provide trusted guidance on the finer details of R&D, from precise HMRC definitions to new rules around Covid support and R&D eligibility.
This can be invaluable to businesses lacking technical expertise in research and development.
Seeking advice can be useful in understanding how claimable costs, non-claimable costs and activity eligibility pertain to your project, helping you to maximise your claim.
Of course, this all comes with one disclaimer: to receive advice on how to maximise the success of your objective, you need to know what your objective is.
With comprehensive R&D planning, this advice becomes better informed, more personalised and, ultimately, more valuable.
This all amounts to more focused, strategic and lucrative research and development.
With a wide range of benefits, it’s clear why it pays to plan your research and development to a T.
Don’t let your business’s research and development become an afterthought. Get in touch with Lumo today for expert advice and guidance on your next R&D tax credit claim.