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Maximise your R&D Tax Credit Claims: Your 2 Step Guide

Step I

Maximise your R&D Claims

Step I

Step II

Using R&D as more
than a Cash tool

Step II

Step 1 – Maximise your R&D Claims

Expenditure on materials and consumables used for the development of prototypes are eligible for R&D tax claims. However, any materials consumed as a result of the development of a first in class prototype, which is then sold on, are not. Anything that has been scrapped or transformed during the R&D process as a result of failed prototypes are eligible.

If consumables, such as light, power, or heat, are transformed in the process, they can be claimed for. So if your team work in an office, a % the utility bill can be included in your tax credit claim.

Maximise your R&D by claiming costs associated with subcontractors or EPWs. Many companies still claim exclusively on internal costs. Subcontractors or EPWs involved in related activity qualify as R&D expenditure.

Subcontracting and unconnected EPW costs qualify. However, only 65% of the costs are considered. Up to 100% of connected EPW costs can be considered.

Include your revenue expenditure on computer software licenses purchased for research and development activities.

Include software licences purchased for everyday tasks used partially for the purpose of your R&D projects, eg project management software.

Many companies focus their claim on their direct staff. R&D allows you to claim on the job titles and roles listed below:

  • Scientific and technical information services. However, only if such services are conducted for R&D support, such as the preparation of the original report.
  • Indirect supporting activities. This includes activities such as maintenance, security, administration and clerical activities, undertaken for R&D purposes.
  • Ancillary activities essential to the undertaking of R&D. For example, taking on and paying staff, leasing laboratories and maintaining research and development equipment, including computers used for R&D purposes.
  • Training required to directly support qualifying projects.
  • Research by students and researchers carried out at Universities.
  • Research (including related data collection) to devise new scientific or technological testing, survey, or sampling methods where this research is not R&D in its own right.
  • Feasibility studies to inform the strategic direction of specific research and development activity.

In order to maximise your R&D claim from a technical perspective, it’s best to have technical teams talking to technical teams. FI Group, like many specialists, employs technical consultants. These consultants have studied or worked in research and development innovation areas. These areas include, for example, software development, engineering or science-related subjects at university. The FI team has often held jobs in these technical fields before becoming a consultant.

The HMRC definition of what qualifies is ambiguous. FI Group ensures we have a deep, technical understanding of your projects. We discuss and understand all R&D qualifying projects and link them to the definition. It is also the role of our consultants to write up a technical narrative report that HMRC would love to see.

HMRC look for companies who have the financial risk on projects to make the claim. What many companies don’t realise is that this doesn’t always mean it’s the company directly paying for, or commissioning the work. If you undertake research and development work for a client, you can still claim funding in one of two situations.

  1. If you charge a fixed fee for the work. This is because you bear the financial risk as the client gets the services delivered at the same cost regardless of your time input. So if a project takes longer because of R&D activity, then it’s your margin at risk and therefore your financial risk.
  2. If a large company has subcontracted out R&D to an SME. The SME can still claim the costs undertaken to carry out the qualifying activities. This should be claimed under the large company (RDEC) scheme.

Step 2 – Using R&D as more than a Cash tool

Real-Time Claiming

At FI Group, we speak with companies every day, and there’s common theme behind every conversation. Once a year, R&D tax allows them to inject additional money into the business. For some, it allows them to add additional information into their cash-flow model.

  • Do you factor R&D into next year’s cash-flow forecast?
  • Can you accurately predict how much R&D you can claim?
  • Do your projects and qualifying projects change every year?

 

We are working alongside companies to implement a real-time approach to R&D. This will provide quarterly updates on their benefit in real time. It will also present extra information and allow them to predict cash-flow up to 18 months in advance. We have developed a methodology that is more time-efficient, and yet still feels like your current R&D process.

The main advantages include:

A better understanding
of when to invest

Better information
for investors

An updated cash
runway

Private Equity

In the business world, private equity funding is one of the best sources of raising funds to grow your business. When raising funds, one of the most important things to have is a detailed business plan and financial forecast. We talk to companies about the relationship behind R&D tax and forecasting. We also help you understand how the R&D process demonstrates to investors you have a handle on your financials.

For large companies or an SMEs funded by private equity, or if you are considering private equity, then please get in touch. We can help you to understand better, how research and development tax credit can become one of your best friends.

International Presence

You may already have a presence in locations around the world. Or you might be taking the first step in your global journey. If either of these applies, then you should consider the impact of R&D funding and how your company structure is set up.

  • Have you structured your financials to be tax-efficient across borders?
  • Do you know where to set up based on R&D funding?
  • Do you understand what qualifies for support?

The UK has a very attractive R&D tax scheme. However, other countries have safer and more attractive schemes. Such schemes could present greater relief on your day-to-day activities. If you claim R&D in the UK and want to take it to the next level and look to expand internationally, please

click here.