Getting ready to submit a Research and Development (R&D) Tax Credit application can be tedious. On the surface, it’s a matter of following the criteria provided by HMRC, yet many business owners are discouraged by the complexity of this process. Identifying qualifying activities and allocating a reasonable proportion of the costs incurred during an R&D project is not an easy exercise for those who are unfamiliar with the guidance.
In this article, we’ll try to prevent you from incurring six common mistakes that people make whilst putting together an R&D application.
1. Preparing without any understanding of the guidance
The Corporate Intangibles Research and Development Manual (CIRD) is extensive, with over 50 pages of jargon-heavy text that may not be thoroughly understood. Although it isn’t a requirement, reading the simplified guide to gain a better understanding of HMRC’s criteria is highly recommended to reduce the risk of including non-qualifying activities and expenditures in your application.
2. Recovering under the wrong incentive
Based on its size, a company can recover costs related to an R&D project through two different mechanisms:
- The SME incentive – for small and medium businesses with fewer than 500 employees, a yearly turnover of less than €100 million, and assets below €86 million
- The RDEC incentive – for larger companies that exceed SME criteria
As always, it isn’t that simple. In some instances, companies that would normally fall under the incentive designed for SMEs, could be forced to recover their costs under the RDEC one due to factors such as grant funding received for example. Each company must consider all avenues of an application to make sure they recover under the correct incentive.
3. Not keeping accurate records
R&D applications can be made up to two years after the end of an accounting period (also known as a year-end). For example, if your accounting period ended on January 30th 2020, you have until January 30th 2022 to apply.
Accurate record-keeping makes up a large portion of any R&D application, not only by providing relevant figures but by explaining to HMRC why you believe the costs associated with a project are eligible. Well maintained records are by no means a requirement, but they will help you if HMRC were to raise a query and will also help to ensure you are fully optimising your application.
4. Missing out some qualifying costs
One of the most common errors is not including all eligible costs, or even including ineligible costs instead. Misunderstanding what can and cannot be included in your application can lead to queries from HMRC or an undervalued benefit.
- Staff Costs
- Software Costs
- Consumable costs
- Third-party costs
We have more information about qualifying costs on pages below:
5. Not utilising help from an R&D specialist
As previously stated, the R&D guidance is a lot broader than people realise. As there are multiple misconceptions around the costs that are eligible to be recovered, using an R&D expert will ensure you get these correct and are recovering costs against eligible projects. Although using an expert isn’t free, it maximises the benefit you will receive and saves you from all the heavy lifting of compiling an R&D application.
For example, if you compile an R&D application yourself and receive a £10k benefit from it, an expert could enhance the value of your benefit substantially (e.g., £30 k) making this a worthwhile decision for your business.
6. Not applying at all!
The biggest mistake companies make is to not be rewarded for their R&D projects at all! It’s estimated that between 65-85% of UK businesses still aren’t recovering under the R&D incentives. As the Government announced a £39.8 billion R&D budget for 2022-2025, now more than ever poses a great opportunity for businesses to be rewarded for their continuous innovation!
Considering applying for R&D tax credits?
Please don’t hesitate to contact us we’ll be happy to help! From general guidance, to report writing, Apogee will make the application process easy and stress-free.