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Blog: Best practise tips to prepare for your next R&D tax relief claim

Supply chain issues, rising prices, and post-pandemic fatigue are among many factors making time an increasingly scarce commodity for most businesses.

So, what if we told you that with some tweaks to the way you plan and prepare for an R&D tax relief claim, you could make your life a lot easier when it comes to submitting one?

Understand your company structure and status

Understanding your company structure and status for the purposes of an R&D tax relief claim is key and will affect whether you’ll be making a claim through the SME or RDEC scheme.  The outcome will impact both the expenses you’re eligible to claim for and the rate of relief you can receive. Changes to your size, structure, ownership or how you fund your R&D can all impact this and therefore it’s not a given that an upcoming claim will be made under the same scheme as a previous one. It’s better to know this sooner rather than later as it may influence decisions you make throughout the year.

Implement good internal processes and record-keeping

When working on what you believe may be qualifying projects, try to get into the habit of documenting key activities – such as the advances being sought, uncertainties faced and the outcome of tests. Even if you’re unsure, note it down anyway as your advisor will be able to look over these to see if there is any qualifying activity.

Project management tools or online shared documents are a good way to do this; if your R&D lead leaves your business or isn’t available, for example, you’ll still need to access this information for your claim. Good record keeping will contribute towards building a robust claim capable of withstanding HMRC scrutiny. You can then also be confident that you’re receiving a fair return for your R&D efforts (not lowering or inflating the value of your claim).

Communicate this best practice to your team to ensure that the burden doesn’t fall on one individual and that nothing is missed.

As well as recording your qualifying activity you also need to identify expenses you’re incurring for R&D throughout the year. A good way of doing this is to highlight different projects in the accounting software you use (such as Xero) and tag invoices and receipts relating to a specific project. If you’re unsure how to do this your advisor should be able to help.

As a reminder, the types of expenses you will incur relevant to an R&D tax relief claim are:

  • Payroll
  • Subcontractors
  • Externally provided workers
  • Utilities
  • Materials and Equipment
  • Software

People-related expenses are usually a key R&D cost and one that many businesses struggle to accurately determine. Whether it be through payroll, clocking-in systems or timesheets you’ll want to keep track of who is working on these projects and when. It’s also important to clearly document the nature of the relationship with any external staff undertaking R&D, as HMRC will want to know the costs for any subcontractors and externally provided workers (EPWs) separate from that of your payroll.

As with all activity and expenses, if you cannot accurately identify or define these you may be reducing the amount of R&D tax relief you can claim.

Liaise with your advisor throughout the year

Utilising your advisor’s expertise is another way to make your life easier when claiming R&D tax relief. Many businesses make decisions throughout a year that unknowingly impact their R&D tax relief claim – and often don’t realise until it’s too late.

For example, using grant funding or subcontracting R&D are both common and can have an effect on the relief you’re able to claim. The key thing here is forward planning and getting good advice from the outset.

Your advisor will also be able to keep you up to date with any rule changes that may affect your claim. From PAYE & NIC caps to changes in eligible expenditure and amendments to the schemes you need to stay abreast of.

We’re here to help

The appropriate and realistic amount of planning and preparation you’re able to achieve will depend on your individual circumstances. But we’d encourage you to communicate these best practices to your team and make sure you’re using an advisor that can be there all year round to provide the best advice.

If you’re looking to make a claim or would like a second opinion on a claim you’ve already submitted, get in touch to speak with one of our advisers today.