8 Common Mistakes in R&D Tax Relief Claims
Not making claim at all
It pays to know whether you meet the necessary criteria in order to make a claim. Often companies fail to realize that they have the opportunity to claim for R&D tax credits and thus never make a claim. In order to be applicable, your business should be engaged in spending money on developing new products or services- or enhancing existing ones. The first mistake business owners make is being unaware that they are eligible for such benefits.
Claiming expenditure under the SME scheme incorrectly
The R&D Tax Credits scheme is subdivided into two branches: the SME scheme (small/medium-sized businesses) and the Research and Development Expenditure Credit (RDEC) scheme for large companies. Before making the claim it is essential to understand which of these business comes under. Legally HMRC considers a larger company to have over 500 employees and a yearly turnover of more than 100 million euros or net assets on the balance sheet above 86 million euros. A company falling below these criteria is considered an SME and should typically use the SME branch of the scheme.
Staffing costs are claimed for those who are not employees
Only those individuals with an employment contract with the company form part of the staff for R&D tax relief claims.
Project activities outside the scope of R&D included in the claim
R&D Tax Relief is given for activities for attempting to resolve an element of the scientific or technological uncertainty associated with achieving an advance in a field of science and technology. This excludes any commercial or financial steps necessary for the innovation- market research, production, or distribution of goods and services.
Not maintaining accurate records
Claims for R&D Tax Credits can be made up to two years after the end of an accounting period. For instance, if your accounting period finished on the 31 st of December 2019, you have time until the 31st of December 2021 to apply.
Accuracy in your record-keeping is vital. It will make up a big part of your R&D Tax Credits claim, not just in terms of providing figures but also in explaining the project itself and why you believe it is eligible. Well maintained record not only help you make a fully optimized claim with nothing missing but also helps you answer any queries HMRC comes back with.
The more information you have, the easier the claim process will be.
Not using the services of R&D Tax Credit specialists
Working through an R&D Tax Credits claim is hard work. Even with everything required, the process can be extremely monotonous. Mistakes are very easy to make and unfortunately, even the smallest errors can lead to substantial delays and financial costs, especially if HMRC asks questions or launches an enquiry into your tax affairs. Unless you have time and expertise to get it the right first time- it is highly recommended that you speak to an R&D consultant to assist you in this claim.
Not claiming all qualifying costs
The value of the R&D tax credits claim you make is dependent on the qualifying costs you include. It is easy for businesses to overlook some of those costs from which they might be able to achieve relief, so being fully aware of those costs associated with R&D tax is vital. Of course, the most obvious expenses are those related to staffing and material costs. But did you know that you can also claim for such costs as electricity, pension contributions, and more?
No account is taken of subsidies or Notified State Aid
A company receiving any form of Notified State Aid for a project cannot claim SME relief at any time for that same project. This will have a very significant effect on the amount of relief available. Subsidies other than Notified State Aid will also impact on the claim but to a lesser extent. Establishing whether a company has received any grants or subsidies, and whether or not these are Notified State Aid, is addressed at an early stage in our work, as we are very aware of the impact this can have on a claim.