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You will need to compile the following documentation:

• A full CT600
• Expense Records: Records of all expenses related to R&D activities including invoices and payment records for materials, labour, equipment and subcontractors.
• Time Sheets: Time tracking records that accurately show hours that employees and contractors spent on R&D activities.
• Accounting Records: General financial records such as profit and loss statements, balance sheets and cash flow statements.
• Cost Allocation: Documents highlighting how costs were allocated between qualifying R&D activities and general business.
• Tax Returns: Copies of relevant tax returns or forms where the R&D tax credit will be claimed.

Please read about other documents that are required to submit an R&D claim.

Under the SME scheme, R&D tax credits are simple to account for; they are non-taxable, meaning they only impact tax liability. 

Under the RDEC scheme, R&D tax credits can be acknowledged as above the line in the accounts, resulting in your profit before tax. The financial boost received under the RDEC scheme is therefore subject to taxation. 

Click here to learn more about accounting treatment for the SME and RDEC schemes.

If your accounting period begins on or after April 1st 2024, your claim will fall under the merged R&D tax credits scheme. Under the merged scheme, businesses can treat these credits as either of the following:

• A reduction in payable tax: the credit directly offsets tax liability
• A government grant: the credit is treated as profitable income across the course of the R&D project’s life, allowing it to reduce the expense

Please note that consistency and adherence to the accounting standards are a necessity.

Each claim varies depending on what scheme your business is eligible for. This is because different rates apply to the SME scheme and RDEC. Using an R&D tax credit calculator can provide you with an estimate of your claim’s worth. 

If your accounting period begins on or after April 1st 2024, rates for SMEs and large companies will be at a fixed rate. This is due to recent changes in R&D tax relief. Click here to get a clear picture of the 2024 R&D tax credit rates..

The key details that you need to know when organising your CT600 corporation tax return are as follows: 

• There’s a specific formatting requirement that you need to adhere to (HMRC do provide a guideline as to what information they require to support your claim)
• When you complete the CT600 with your benefit amount, you need to remember that the figures will need to be inclusive of the R&D expenditure as well as the tax credit amount
• When it comes to working out the enhanced R&D expenditure, you need to add the appropriate enhancement to your qualifying expenditure
• If you’re going to make a claim prior to filing your corporate tax return, you will need to file an amended CT600 return as well as computation so that HMRC will accept your claim

HMRC actively encourages businesses to explain why they feel that their project qualifies, as well as a summary that shows costs incurred by the research and development project(s). Choosing to share this information will help improve the validity of your claim.

If expenses eligible for R&D have been treated as an intangible asset, you can claim them by deducting the intangible asset’s cost in your tax calculation, either when it’s expensed or during its amortisation. This is a complex area where our assistance can be valuable. It’s important to note that you can only receive tax relief for the asset once. If it’s deducted as an expense in the tax calculation, any future amortisation related to that expense will need to be added back in subsequent tax calculations until the entire amortisation is concluded

If your eligible R&D tax credit expenditures are treated as intangible assets, you can claim them by deducting the cost of your intangible assets in your tax calculation – either when it’s expensed or during its amortisation. 

It’s important to note that you can only receive tax relief for this asset once. If it’s deducted as an expense in the tax calculation, any future amortisation related to that expense will need to be added back in subsequent tax calculations until the entire amortisation is concluded. 

This can be an incredibly complex area where our assistance can be highly valuable. Click here to get started with one of our expert consultants.

As R&D tax credit claims are considered to be a prior-year adjustment, you don’t need to restate the previous accounts before claiming, but the option is there if you want it.

As leading R&D tax credit consultants, our expert team can take leadership over your R&D claim to align it with HMRC’s standards, ensuring that you get the greatest benefit you’re eligible for. 

Our no-win no-fee approach means that we’ll evaluate your project’s claim potential without any charges. This means that if your claim doesn’t yield any benefits, you will not be charged.

Alexander Cliffords aim is to simplify the R&D tax credits claim process in a way that saves you time, and with a successful track record, we’ve already obtained over £83 million for our clients.

Contact us today to get started on your R&D tax credits claim.

In certain situations you are able to offset your R&D tax credit against any outstanding taxes you owe. 

The reimbursements of tax and the disbursement of tax credits through the SME tax credit scheme, the RDEC scheme and the new merged scheme can be influenced by legislation that allows HMRC to deduct the amount owed by any outstanding tax before disbursing the remaining balance to you. 

Reminder: this only applies if a formal tax payment deferral has been arranged.

Many businesses aren’t aware that their projects contain qualifying R&D activities until part way through the project, meaning they’ve not kept relevant documentation while completing their project. 

HMRC therefore understands that not all R&D activity will be recorded (especially for first time claimants) and they keep this in mind when checking the validity of your claim. 

Where possible, it is advised to reconstruct documents by piecing together various segments of information relevant to your R&D tax credit claim. Click here to understand what documents you will need for your claim.

If errors are identified during the enquiry process of your R&D tax credit claim, the inspector could judge that your claim should not be settled. Should you receive this judgement, here are the steps that you should follow: 

1. Review your claim
2. Seek out an R&D tax credit consultant
3. Amend the errors
4. Submit the corrected claim
5. Communicate transparently with HMRC 
6. Respond promptly

Having an incomplete claim however, could result in HMRC determining your claim as unsuccessful, while they contemplate whether or not your business should incur penalties for carelessness or negligence.

The most effective way to avoid HMRC enquiries is to know exactly what your R&D tax credit claim should contain. 

You need to ensure that you are filing the correct costs with accompanying documents and a technical narrative that provides HMRC with all that they need to make a decision on your claim. 

Furthermore, working with R&D tax credit specialist such as Alexander Clifford can help to minimise the risk of enquiry, as they have specialist insight into how to compile an accurate and complete R&D tax credit claim.

The short answer is yes, HMRC has the authority to delay reimbursement of R&D tax credits to ensure that your claim is up to their standards. 

If HMRC have queries about your claim, they may investigate which places your reimbursement on hold until the investigation is complete. Unfortunately there isn’t an exact timescale for how long an investigation into your R&D tax credit claim may be.

However, as different aspects of your claim are mutually accepted throughout the course of the investigation, you can request partial payments that correspond with agreed upon terms.  Furthermore, HMRC has the right to request the money back from an R&D tax credit claim. This typically happens when HMRC decides to open an enquiry after the payment has been processed.

This is why it is so important to submit an accurate and robust claim. Click here to find out how we can help improve your claim.

The short term impact of an enquiry will typically delay the payment of the R&D tax credits or the tax repayment. 

During the enquiry process, an inspector will be assigned to gather further information on the research and development project, and the submitted cost claim. The inspector will usually do this by:

• Submitting questions via letter or email
• Meet with professionals involved in the claim
• OR a virtual call through which the necessary questions are asked

If the claim is being handled by Alexander Clifford, we will be on hand to manage the enquiry process for you, taking the lead to let you know what additional information is required, and even to prepare you should a meeting with the investigator take place. 

If your claim has been handled by either you or another company, we can still help by providing enquiry support. Once the investigator is satisfied, they will close the case and arrange for the claim to be settled and the R&D tax credits or tax repayment to be paid.

In cases where the investigator is not satisfied, they will not close the enquiry, but it is possible to reach an agreement in each of the enquiry focus points. This allows the enquiry to be settled with negotiation.

Being responsible for R&D tax relief, HMRC’s role is to issue guidelines and to safeguard the R&D tax initiative by ensuring that every successful claim is compliant. 

The guidelines and the rules set by HMRC are reviewed periodically, meaning policy and legislation changes are typically updated annually. Major changes are usually introduced in order to cater to adhere to industry needs and advancements. 

Following R&D tax credit guidelines, companies or consulting agents create the necessary documentation that is submitted directly to HMRC. The HMRC will then analyse and check submitted reports before deciding whether to approve, query or class the claim as unsuccessful with the possibility of penalties.

Since 2022, HMRC have been stricter on their policies and frequently open more enquiries to determine the authenticity of a claim and to address potential anomalies. 

These are the most common reasons for an enquiry into your R&D tax credit claim:

• Compliance check to determine eligibility
• Incomplete documentation
• Inaccurate claims
• High expenditure claims
• Industry specific issues 
• Previous issues

When facing an enquiry, HMRC will typically communicate the reasons and what they need in order to verify your claim.  Click here to understand how you can prevent making some of the common mistakes that lead to enquiries.

As there are a number of factors to be considered during an enquiry, it can take anywhere from a few weeks to several months for it to be resolved. 

The great thing about Alexander Clifford is that we utilise the skills of our diverse team to ensure that your claim is completed with accurate information that reflects the claim. Due to our detailed insight into HMRC policy, we have been able to keep our enquiry rate below 1%.

At Alexander Clifford, we have expert knowledge on the R&D tax credit claims process that allows us to prepare and submit claims that will hold to scrutiny. For this reason, our enquiry rate is below 1%. When a client is faced with an enquiry, we ensure that we offer support through every step of the process, using our knowledge of the guidelines and the confidence in our expertise to help alleviate any stress our clients may feel. 

Furthermore, we take the lead on the enquiry to carry out claim negotiations, leading to a calm and successful outcome. 

Click here to find out how we can help you through your claim.

Research and development (R&D) tax credits are a UK government incentive designed to encourage businesses to invest in technological and scientific advancement. They do this by providing financial benefits and tax incentives to eligible businesses that engage in R&D activities. 

These credits typically cover the expenses related to research and development such as: 

• Staff pay costs
• Supplies and equipment
• Subcontractor payments

Prior to April 1st 2024 the R&D initiative consisted of two main schemes: the SME scheme and RDEC. (Research and Development Expenditure Credit)

If a company’s accounting period begins before or after April 1st 2024, then their R&D tax credit claim falls under the new merged scheme, which was formed to simplify the process.

As of April 2024, there are now three prominent R&D schemes. This is due to recent HMRC R&D updates that introduced a new scheme designed to simplify the claims process. 

If your accounting period begins prior to April 1st 2024, your R&D tax credit claim will fall under one of the following schemes.

The SME Scheme: 

Offers R&D tax credits to SMEs (small and medium sized enterprises) that have fewer than 500 employees, have an annual turnover of under €100m, and a balance sheet under €86m.

The RDEC Scheme: 

Offers R&D tax credits to large companies with a staff headcount of over 500, have an annual turnover of over €100m, and at least €86m or more in gross assets. 

If your accounting period begins on or after April 1st 2024, your R&D tax credit scheme will fall under the new merged scheme, which incorporates the SME and RDEC schemes.

As your business scales up or down, you might not qualify for the same R&D tax credits as before. These changes won’t affect your status until they apply for two years in a row, known often as the ‘year of grace.’

If a large company buys your SME however, this grace period is skipped and you’re immediately considered as a large company. This is important in industries with many mergers and acquisitions.

Switching between SME and large company status may affect the R&D tax credit benefits you get, depending on the beginning of your accounting period. This is because the rates and qualifying expenses differ between the SME and RDEC schemes.

If your accounting period begins on or after April 1st 2024 however, the R&D tax credit benefits will be the same regardless as to whether your company is classed as large or as an SME. This is due to recent HMRC legislation changes that introduces a new merged R&D tax credit scheme.

Under HMRC’s definition, a subcontractor is an external business or individual that is brought on board to perform specific services in relation to the R&D project, when there is a lack of in-house expertise. 

Payments to subcontractors are typically paid directly and not through a third party such as an agency.

EPWs (externally provided workers) are temporary workers who are supplied to a company from an external entity. 

These workers function similarly to regular employees but are compensated through invoices sent to the third party staff provider, as opposed to being on the company’s payroll. 

EPWs can come from a staffing agency, a connected company, or a personal service company.

Consumable items are physical expenses that can be claimed for R&D tax credits. These include things like water, fuel, power, and materials that get used or changed during R&D.

The expenses must be for activities recognised as R&D, including indirect activities and apply to both SME and RDEC schemes for all company sizes.

If a chemical can be reused, you can still claim it, however if an item is still usable in its original form after R&D, you can’t claim its cost.

For profitable companies, R&D tax credits will always have a positive impact on cash flow, since the first step offsets against corporate tax.

However this may not always be the case for participants under the SME scheme that are operating at a loss, as R&D tax credits will partially or completely offset the pre-existing loss. 

Therefore, it’s important to take into account that the R&D scheme may not be financially beneficial for your situation. Sometimes preserving or increasing loss can be just as valuable as obtaining cash, especially if these losses can be used for tax relief. 

The RDEC scheme however, involves caps and offsets that allow the claim to be carried forward for future use, although converting this into cash will depend on future calculations in subsequent years.

De minimis state aid refers to a form of state aid provided by the government to businesses, but it is subject to a maximum allowable amount over a specified period. For this reason, it may have a significant impact on SMEs (small and medium sized enterprises). 

A company cannot claim SME R&D tax credits for costs within a project that is funded by de minimis aid. 

This is why we at Alexander Clifford always advise our clients to stay informed of how certain funding may affect their R&D claims, throughout the duration of their research and development activities.

Whether your business is making a profit or operating at a loss, the UK government encourages research and development, as they contribute to economic growth, technological advancement and progression in regards to efficiency and sustainability across various industries.

To encourage this, the British government offers R&D tax credits as a tax relief to SMEs (small and medium sized enterprises) that invest in research and development activities. Meaning these tax credits offer businesses the opportunity to harness innovative thinking without being held back by a prospective financial burden. 

Learn more about the SME scheme.

To be eligible for R&D tax credits under the SME scheme, your business must meet the following criteria: 

• Have less than 500 employees
• Have an annual turnover of less than €100m
• Have a balance sheet total of under €86m

Note: The values are stated in Euros because the definition of SMEs was originally established via the European Commission. R&D tax credits however, have no affiliation with the European Union or any of its funding.

SMEs (small and medium sized enterprises) can claim R&D tax credits whether they are at a profit or a loss. The current rates are as follows:

• Enhanced deduction rates are 86% of qualifying expenditure
• Payable tax credit rates for loss making SMEs are 10% of the surrenderable loss
• Corporate tax rates for profit making SMEs are dependent on the accounting year of the claim being made

This helps reduce the company’s tax bill or gives a cash payment if the company is loss-making.

While there are differences in rates, the main difference between claiming as an SME versus under RDEC is the accountancy treatment. 

For SMEs the tax credits are non taxable, and will only affect your tax liability. Under RDEC, the R&D credits that companies receive under RDEC are classed as credits when calculating the pre-tax profit.

Simply put, the SME scheme is what’s known as a below the line benefit, while the RDEC scheme is an above the line benefit.

When an SME subcontracts R&D work to other SMEs with the same shareholders, the claimable costs are affected.

Usually, you can claim 65% of the subcontracted R&D costs. However, if both companies have the same shareholders (connected parties), the rules change.

For unconnected subcontractors, you can include 65% of the R&D-related costs in your claim. If only part of the services is R&D, only 65% of that part is claimable.

For connected companies, the amount you can claim is either the payment made or the subcontractor’s actual R&D costs, whichever is lower. It’s advisable to seek professional advice for accurate claims.

The short answer is yes, SME R&D tax credit claims are impacted by grants, but the considerations are significant. 

If an SME receives state aid for an R&D project, none of the project costs can be claimed for SME R&D tax credits for every £1 of state aid received. The project may still be eligible for R&D tax credits under the RDEC scheme however, if it meets the necessary requirements. 

If an SME receives a grant that isn’t state aid, the SME may claim the grant funded portion of the project under RDEC, and the remaining amount under the SME scheme. 

Note: The award of a grant to a large company does not affect its eligibility to claim under RDEC.

If the transition is organic, the status of the SME remains unchanged until the second year when it is achieved. 

For instance, if an SME organically becomes a large company in year one and this status continues into year two, the company can make an SME claim in year one, but in year two they would need to claim under RDEC. 

If the transition is the immediate result of a takeover or the sale of a group company however, the change is immediate. 

An SME being taken over by a large company should consider shortening its accounting period to end just before the takeover. This allows them to benefit from making an SME R&D claim for the period before the takeover.

When you use the SME R&D scheme, there are a total of five ways you can get your benefit. Take a moment to read about each option below so that you can begin to work out which one is best for your business:

• Cash Reimbursement – This is when a claim has been made for the last two periods. These claims will result in a cash reimbursement if you have already paid your Corporation Tax.
• Tax Savings Against Your Corporation Tax – If your claim is due to be submitted in the year that you are filling your Corporation Tax return, then you may be able to get your benefit as a credit against your tax bill. However, for this to be the case, your business needs to be making a profit. 
• Relief Against Losses – If you find that you are in a loss-making position after you have completed your R&D claim, then you can choose to carry back the amount to the previous year if it was a profitable year. You can also choose to carry it forward if you expect to be profit-making in the year coming. This process can enable you to generate a cash rebate against tax saved or as a tax-saving against your Corporation Tax.

If you are not concerned about cash flow, then a carry-forward is more valuable to you in the future as long as you do not need the cash injection into your business.

• Receiving a Cash Credit – If you are a loss-making company, then you can elect to get a cash payment that works as an exchange of any R&D enhanced losses that you have. This is a great choice for any company that needs a cash injection and is valued at up to 33p for every £1 spent on Research and Development.
• Opting for a Combination – Your final option is to choose a combination of the previous options. One example would be to make the saving against your Corporation Tax as well as carrying forward or back any losses to help offset them against your profits. 

Deciding which option is right for your company can be tricky, especially when there are such a range of options and contexts. We would always advise that you engage with an expert to discuss your options.

If you want to know how you can expect to receive your benefit, then this is determined by both the scheme you use to make your claim and the current financial position your business is in. Interestingly, it can also be dependent on your own wishes as HMRC will take this into consideration.

Typically, companies can expect to get their entitlement:

• In a single cash payment.
• A reduction in your Corporation Tax
• A carry forward or backward of an enhanced loss
• A mix of the above!

If you use the SME R&D scheme, then you can expect to see a reduction against your taxed profits, or even get a cash payment if you are a loss-making company.

After compiling and submitting the claim, it typically takes HMRC around 4-6 weeks to process it. However, during peak periods, this processing time might be longer. Following the processing period, payment is usually made within 14 days.

The average claim amount is on the rise; the tax year of 2021-2022 increased by 11% to a total of £90,315. The amount of money you receive is dependent on how much you have spent, what R&D scheme (SME scheme or RDEC) you are applying for, and what tax year you are claiming. An R&D tax credit specialist can help you navigate this and let you know how much your R&D claim is worth.

A successful R&D claim has the potential to elevate your business by providing a financial boost and competitive edge over others. Here is what else you could achieve with an R&D claim:

• Tax credits or deductions – You pay less tax meaning you have a pot of funds to use to reinvest into your project, whether that’s to make more hires, drive your marketing strategy, or invest in new equipment
• Offset costs – Successful R&D claims may allow businesses to recover a portion of their qualifying R&D expenses. This helps offset the costs incurred during the research and development activities.
• Attract investment opportunities – A successful R&D is well regarded by prospective investors; it’s proof you’re doing something brand new and you’re dedicated to research and development. Your R&D claim could complement an investment grant, helping you to support the acceleration of your project.
• Obtain a competitive advantage – Stand out amongst other competitors with a successful R&D claim. Customers value accreditations and seeing you’ve been granted R&D tax credits could help create sales and spark interest in your project.

You can claim for what you spent on eligible R&D costs in the next tax year but you cannot reuse the same R&D claim. It’s natural for certain innovations to take over a year to complete the research and development needed. You’ll need new technical documentation created that reflects your involvement in R&D from the tax year you’re claiming in alone, stating where you were up to at the start of the financial year and what you did throughout the year. It’s important to note what counts as R&D and what doesn’t. Eligible R&D activities involve the work that is directly related to research and development and encompasses technical uncertainty. Therefore, the commercial, aesthetic, business administration, and production of your goods or services you cannot claim for because they’re not genuine R&D.