R&D Tax Credits provide innovative companies with a tax rebate or partial cash reimbursement, to financially incentivise research and development in the UK.
It’s a generous scheme designed for businesses building a new product, process, or service that overcomes scientific or technological uncertainty. If you’ve conducted R&D over the past two financial years, and incurred costs in areas of qualifying expenditure, your business can benefit from R&D Tax Relief!
Eligible businesses aren’t simply handed R&D Tax Credits by HMRC - claimants must apply every fiscal year.
For an R&D Tax Credit claim, claimants need to complete two different reports – the financial and technical reports. Formulating these claims requires different areas of speciality and experience within research and development taxation.
Claim Capital delivers successful and maximised R&D claims to UK companies, through an end-to-end R&D Tax Credit service. We have two specialised teams dedicated to the financial and technical aspects of the R&D claim, allowing us to work quickly and efficiently whilst adhering full HMRC compliance.
Analysing, extracting, and reporting your R&D costs and activities for the purpose of an R&D Tax Credit claim is complex.
The first component of the claim, the financial report, details a comprehensive breakdown of qualifying R&D expenditure across the following categories: staffing; externally provided workers (EPWs); subcontractors; software; consumables; and utility costs.
The second component is the technical report (or technical narrative), which defends the costs listed in the financial report by providing written evidence that these were directly related to furthering the research and development.
In this blog, we’re going to focus on what’s included in the financial report.
If you’d like to learn more about the contents of the technical report, read our related blog: What’s Included in the Technical Report?
What financial information does the R&D Tax Advisor require from the claimant’s company?
To complete a financial report for the purpose of R&D Tax Relief, the R&D Tax Advisor must receive the following information from whoever manages your company’s bookkeeping:
Subcontractor breakdown (if applicable)
Software breakdown (if applicable)
Travel expenses (if applicable)
What does the R&D Tax Advisor do with this information to produce the financial report?
Once the relevant financial data is clarified with the accountant and received on our end, our Financial R&D Tax Specialists analyse your spending to extract the total amount of qualifying R&D expenditure that was allocated directly to advancing the R&D.
When it comes to formulating the claimable R&D spend, it’s not as clear-cut as qualifying and non-qualifying. Some cost categories must be considered proportionally, depending on conditions such as whether your subcontractor is deemed connected or non-connected to your business.
There are several caveats involved that make using an R&D Tax Expert crucial to getting the most out of your R&D claim, whilst avoiding HMRC enquiry.
In doing this, your Financial R&D Tax Specialist ensures each category of qualifying R&D expenditure is listed clearly and separately, each with their own total. This makes it easy for HMRC inspectors to follow and approve the report.
The financial report concludes with the sum of all claimable cost categories, providing a well-justified R&D claim total benefit.
Common mistakes in the financial report
In the calculation of a business’ total R&D claim benefit, certain complexities can arise. For example, the financial report will have to consider whether the business has previously received grant funding.
In summary, R&D Tax Credit claimants that have previously been awarded Grant Funding on the same project are limited to reclaiming a fixed rate of 20% of total R&D expenditure. This means that they have to file under the RDEC Scheme, as opposed to the more lucrative SME Scheme - offering up to 27%.
To find out more about how R&D Tax Credits and Grant Funding work in conjunction with each other, read our related blog: Can R&D Tax Credits and Grant Funding work together?
Inexperienced R&D Tax Credit providers, and general accountants trying to complete the financial report in-house, often run into problems when they fail to consider the many nuances of the scheme.
That’s why is always best to rely on an experienced R&D Tax Credit Specialist, with expert knowledge of how to report your financials in relation to the R&D Tax Relief scheme.
Another mistake that often arises when claimants file their R&D Tax Credits themselves or through non-specialists is to do with the fact that HMRC frequently updates R&D Tax Relief legislation.
Failing to adhere to the latest guidelines could result in missing out on new areas of qualifying expenditure (such as data, cloud computing, and pure mathematics costs from April 2023).
If you want to access maximised R&D Tax Credits, without taking time away from running your business, offload the entirety of your R&D claim to our specialists.
Our end-to-end service can turn your R&D Tax Credit claim around in just 3-5 days of receiving sufficient information.