Claiming R&D tax credit is something that many businesses could be doing, but aren’t. If this is the case for you, your business could be missing out on a very significant amount of money, that could ultimately be the difference between making a healthy profit or recording a loss. In fact, according to R&D specialists Cooden Tax Consulting, the average claim for a small business is around £50,000. This shows just how important it is to take this issue seriously.
To make an R&D tax credit claim, you need to be registered with Companies House and you need to be carrying out work that is looking for advances in a technological or scientific field in order to benefit the wider industry. But there is actually a level of complexity in making R&D tax credit claims, and how you claim can make a big difference to the amount of level you get out of it.
In this article, we will take a look at six tips that can help you get more value out of your R&D tax credit claim.
1. Get staff to record the time that they spend
In order to make an R&D tax credit claim, you need to understand how much of your time you are actually spending on it. And to do this, you’ll need to get staff to track their time. It may be the case that you already have project management software that will allow you to do this easily. But it is not a problem if you don’t.
Use spreadsheets to track the time spent on R&D projects. After tracking the time for month or two, you’ll have the data you need to establish a standardised picture of the amount of time that you put into R&D.
2. Track your software
You might not be aware, but you can claim again the costs of the software that you use for your R&D activities. It is also a good idea to keep track of exactly how you use the software so that this can be factored into your claim.
3. Ensure everyone is on the payroll
It may be the case that you currently pay many members of staff through some other means than as payroll employees. However, if you want to make the most of your R&D tax credit claim, it is actually better to have them as payroll employees. Yes, this will mean paying more tax, and a greater level of admin, but with an R&D claim it can actually work out far better.
A good example of this is if you currently pay yourself through dividends, rather than on the payroll. But R&D rules prevent you from making claims on dividends, so you wouldn’t be able to claim back tax on your pay unless you are on the payroll.
4. Avoid paying expenses
It is important to understand that there are some complexities surrounding expenses and R&D tax relief. Firstly, your employees can claim tax relief on R&D-related trips outside the office – as well as the associated costs with food, drink, accommodation, etc. However, commuting to and from your main office does not count as something that can be claimed.
It is important to note the second point, however, which is that any expenses that can be made on R&D-related work must be first paid for by the employee. This means that you must ensure staff pay for their expenses with their own money, and then submit a request to reimburse their expenses.
5. Keep your receipts
Want to make an effective R&D tax relief claim? You are going to need your receipts to prove the costs of everything that you have paid for.
You might not be aware that you don’t actually need paper copies of your receipts. HMRC actually tends to prefer digital invoices, as well as photos and emails, rather than the actual physical paper documents that would need to be sorted through.
6. Cash might not offer the best value
It is always tempting to get a cash payment from HMRC out of your R&D tax credit claim, but in truth it can actually sometimes be more valuable to wait and using the credit at a later date when your company is more profitable.
If you are going to make an R&D tax credit claim, you will need the help of specialist accountants with experience working in your industry. They will be able to help guide you through the process and ensure that your claim is as valuable to your business as possible.