R&D Tax Credits offer innovative companies a tax rebate, to financially incentivise research and development here in the UK.
If your business is building a new product, process, or service that overcomes scientific or technological uncertainty, you can benefit from R&D Tax Relief.
But R&D Tax Credits aren’t given out by HMRC automatically - companies have to submit an application.
Formulating and reporting your research and development expenditure in order to produce a compliant R & D claim is a difficult task, that requires the assistance of an expert R&D Specialist, such as ourselves at Claim Capital.
With over 20 years of R & D claim experience under our belts, we know how to deliver fully maximised R&D Tax Credits to businesses whilst complying with HMRC’s complex regulations.
In a nutshell, R & D claims are made up of two components: the financial report and the technical report.
The first component, the financial report, details a comprehensive breakdown of qualifying R&D expenditure in categories of: staff; externally provided workers (EPWs); subcontractors; software; consumables; and utility costs.
Though the financial report demands great precision and reference to various guidelines set out by the government, the technical report often brings about more difficulty for inexperienced advisors, or founders trying to submit their R &D claim by themselves.
In this blog, we’re going to focus on what the technical report, otherwise referred to as the technical narrative, must feature to get the green light from HMRC.
In addition, we’ll talk through some points that frequently trip applicants up.
First things first, what are R&D Tax Credits?
Like we mentioned earlier, R and D Tax Credits are a government initiative that offers innovative companies financial support to fuel research and development within the UK.
R and D Tax Credits offer one of the most generous tax relief schemes available to businesses, with eligible businesses able to reclaim up to 27% of their R&D expenditure back – either as cash directly into your bank account, or a Corporation Tax deduction off current or future tax liabilities.*
R and D Tax Credits operate under two different schemes, implemented to cater to businesses of different sizes and stages.
The first is the SME R&D Tax Credits scheme, which is the more conventional out of the two due to its accessibility. To qualify for R&D Tax Relief under the SME scheme, companies must have:
👉🏽 Less than 500 employees;
👉🏽 Less than €86m in gross assets;
👉🏽 Achieved less than €100m in turnover.
Within this scheme, the business’ financial position at the time of claiming also plays into the size of their R & D claim.
Loss-making companies are entitled to claim up to 27% of total research & development eligible costs, which is paid directly, in cash, into your bank account.
However, if you're profit-making, your business can be awarded up to 21.5% of total R&D eligible costs, this time in the form of a tax credit.
If you exceed the metrics of the SME R&D Tax Credits scheme, you’ll have to claim through the RDEC scheme instead. The RDEC R&D Tax Credits scheme is available for businesses with:
👉🏽 More than 500 employees;
👉🏽 More than €86m in gross assets;
👉🏽 Over €100m in turnover.
Unlike the SME scheme, the RDEC scheme awards a fixed rate of 20% of eligible R&D costs (subject to corporation tax). RDEC applicants, don’t be disheartened!
Your substantial revenue and reinvestment into R&D ensures that 20% of R&D spending still represents a huge amount of cash.
What is the role of the Technical Report within R&D Claims?
The technical report is how you justify to HMRC that the costs laid out in your financial report are driven by research and development.
It’s a written narrative that details your R&D project, your company, your spending, and more. The key is in basing your annual R & D claim on the perfect formula – of course, we’re not giving ours away here.
Our clients secure the maximum financial benefit from R and D Tax Credits, and we want to keep it that way!
However, we can give an overview of the kinds of things a Technical Report should include and exclude.
The function of the R&D Technical Narrative is two-fold.
Firstly, it has to explain why your company and your project is eligible for R and D Tax Credits in the first place, and secondly, it helps HMRC identify non-compliant and potentially fraudulent claims.
There’s an art to technical report writing. That’s why it pays to use an R&D Tax Relief Specialist.
Think of your technical report as your chance to win over the hyper-vigilant army of HMRC inspectors.
Because the scheme is so generous, there’s no cutting corners when it comes to R&D Tax Relief compliance. HMRC has increasingly high expectations of applicants, and now demand greater levels of expertise than ever before.
So don’t fall at the first hurdle by going at it alone.
Whilst it might be tempting to submit an R&D Tax Credit claim without specialist help, it’s really not worth the risk.
Even one unsuccessful application on your business’ record can trigger multiple enquires down the line and be difficult to shake off.
This stain on your company could also motivate HMRC to look into your wider tax affairs, which is time-consuming, expensive and generally painful.
So yes, using an end-to-end R&D Tax Credit service that has a solid reputation is the best route to take.
What should be included in an R&D Tax Credits Technical Report?
Generally, the technical report needs to cover the following points:
What technical or scientific advances the project aimed to address.
What difficulties cropped up along the way and how they were tackled (again these should be purely scientific or technological).
Which scientific or technological area the company operates in.
Whether competent professionals were used to do the work.
If you follow these basic points, you’ll have a solid foundation to elaborate on.
💡 Keep your technical narrative as concise as possible, jam-packed with factual statements as opposed to rambling storytelling with no concrete evidence.
💡 The HMRC whose desk your claim lands on is likely going to be very busy. Don’t make things more difficult for them by blinding them with sector-specific jargon. Making even the most complex R&D digestible for tax legislation experts is something we’re great at.
💡 This may sound obvious, but stick to all things technical. Don’t interject commercial, staffing or marketing details. The technical report requires cold, hard facts.
💡 Link back to the expenditure listed in your CT600. Make it abundantly clear to HMRC how the CT600 and the R & D claim relate to each other.
File your R and D Tax Credits with Claim Capital
It’s impossible to summarise within one blog post the level of expertise that’s required for a winning R & D claim.
We’ve seen accountants previously undervalue R&D claims for our clients by tens of thousands. This shows that even financial professionals are falling short when it comes to securing maximised R and D Tax Credits.
Our team of Technical R&D Tax Experts solely specialise in completing and submitting the technical component of the R&D claim. We work alongside the financial team to simultaneously complete your R&D Tax Credit claim within a 3-5 day window. Myself, and our PHD-qualified Technical Narrative Specialist are confident to uphold our success-based fixed fee.
Put simply, if your R&D Tax Credit claim doesn’t succeed, we don’t get paid!
Make an enquiry today to schedule your free, no-obligation R&D claim consultation.
*These are the updated figures in line with the new legislation announced in the April 2023 Spring Budget.