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You will need to have:

• A full CT600
• Expense Records: Records of all expenses related to the R&D activities, including invoices, receipts, and payment records for materials, labour, equipment, and subcontractors.
• Time Sheets: Time-tracking records for employees and contractors involved in the R&D project, showing the hours spent on qualifying R&D activities.
• Accounting Records: General financial records, such as profit and loss statements, balance sheets, and cash flow statements, to demonstrate the financial position of the business.
• Cost Allocation: Documentation showing how costs were allocated between qualifying R&D activities and other business operations, as only eligible R&D expenses can be claimed.
• 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.

In the SME scheme, research and development (R&D) tax credits are simple to account for: they are non-taxable, meaning they only impact your tax liability. It is an enhanced deduction. On the other hand, for RDEC claims, the credit can be acknowledged above the line in the accounts, resulting in an increase in your profit-before-tax. The financial boost you receive under RDEC is subject to taxation. Learn more.

Each claim varies depending on what R&D scheme; the SME scheme and RDEC, you’re claiming under as they have different rates and therefore, different outcomes. The most important aspect of your R&D claim is the qualifying costs. Using an R&D tax credit calculator can provide an estimate of what your claim is worth.

There are a few key details that you need to know when filing your R&D tax credit claim and completing your CT600 corporation tax return.

The key details are:

• There is a specific formatting requirement that you need to adhere to and HMRC do provide clear guidance on what they want to see in terms of information 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 take your qualifying expenditure and add on the appropriate enhancement. It’s important to take care when calculating this amount as it is one area in which HMRC state that lots of mistakes are made. 

• It is also important to note that if you are going to make a claim for R&D tax credit after you have filled your Corporation Tax return, you will need to file an amended CT600 return as well as a computation so that HMRC will accept your claim.

HMRC actively encourage companies to explain why they feel their project qualifies, and they also like to see companies that have provided a summary that shows costs incurred by the research and development. Choosing to share this information will help to prove that you have taken due care and attention throughout the preparation of your claim and will help to avoid the need for an enquiry.

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.

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

Our expert team can take leadership over your R&D claim, to align it with HMRC’s standards, retrieving the benefit you’re eligible for! We provide a no-win no-fee approach. We’ll evaluate your project’s potential for a claim without any charges. If your claim doesn’t yield benefits, there are no costs involved. Our aim is to promote R&D incentives, as well as simplifying the accounting process in a way that’s time saving for you. With a successful track record, we’ve already obtained over £83 million for our clients. Our stringent in-house compliance processes exceed HMRC’s standards, resulting in minimal enquiries and swift delivery of R&D benefits. Contact us today to begin your journey towards benefiting from R&D tax credits.

HMRC’s role here is to issue guidelines, definitions, and the rules that everyone follows when preparing and submitting an R&D tax credit claim. These are reviewed periodically, which means if you were involved in an R&D application ten years ago, the process will likely have become more rigorous and robust. HMRC adapts to changing needs, especially understandable in an area concerned with advances for so many industries.

Following those guidelines, company’s or specialised agents create the documentation to apply for the R&D tax credits, which goes to HMRC. Their regional departments will analyse and check the submitted reports before deciding whether to approve, query or class the claim as unsuccessful with the possibility of penalties.

In certain situations, you are allowed to offset your R&D tax credit against any outstanding taxes you owe. The reimbursements of tax and disbursements of tax credits through SME scheme and RDEC incentives can be influenced by legislation that allows HMRC to deduct the amount owed from any outstanding tax before disbursing the remaining balance to you. However, this exception applies if a formal tax payment deferral has been arranged.

Many businesses aren’t aware their project contains qualifying R&D activities until later down the line. This means they’ve not kept relevant documentation while completing their project. HMRC understands this situation for first-time claimants and they keep this in mind when checking your claim. You’re able to reconstruct documents, piecing together various segments of information, for your R&D claim.

Having an incomplete R&D claim application could lead to HMRC considering whether your business should incur penalties for carelessness or negligence. This could be the case if your R&D claim is not robust at the time that it is submitted. If errors are identified during the enquiry process and the inspector’s judgement is that the claim should not be settled, then there are several next steps to be taken.

The most effective way to prevent HMRC enquiries is to know exactly what your claim must contain, which you can find out in the Corporate Intangibles Research and Development Manual. You need correct costs, accompanied by documentation, and a technical narrative that provides HMRC with all the information they need. If you’re using a tax software, it’s best practice to check these figures manually before submitting. 

Relying on an R&D tax credit specialist such as ourselves to take leadership over your claim. This can prevent HMRC enquiries because they have a deep understanding of what is required in each claim, for each industry. From experience, they know common enquiries, and they’ll prevent these from arising.

Yes, HMRC has the authority to delay the reimbursement of R&D tax credits until your claim is up to their standards; correct numbers, a technical narrative that provides a detailed scope of your work and the completed documentation.

If HMRC have queries about your claim or the way you prepared your claim, they may investigate and they’ll withhold your tax repayment until the end of the investigation. There isn’t a set time of how long these investigations take to complete, they depend on the complexity of your case. 

During the investigation process, as different aspects of your claim are discussed and mutually accepted, you can request partial payments that correspond to the agreed-upon amounts.

It’s important to keep in mind that HMRC can request the money back. This happens when HMRC decides to open an enquiry after the claim has already been processed. You’ll have to pay a sum of it back at the end of the enquiry.

If an enquiry is started, the impact in the short-term will usually be a delay in the payment of the R&D tax credit and/or the tax repayment. An inspector will be appointed to the enquiry, and it will be their role to ask further questions about the R&D and the cost claims that have been submitted. The inspector will usually submit questions via either letter or email. They will usually also want to meet the competent professionals who have helped with the claim submission. With virtual meetings becoming more common, the enquiry can also appear as an agenda of questions that will be discussed on a call, especially if the industry, R&D, or project is complicated.

If the claim has been produced and submitted by Alexander Clifford, then we will be on hand to manage the enquiry process for you. We will take the lead and ensure you are aware of what additional information is needed and prepare you for meeting with the inspector if required. 

If your claim has been produced and submitted by yourselves or a different company, we can still help by providing enquiry support. 

Typically, enquires opened by HMRC are settled easily, as once the inspectors receive the additional information or explanations, they are satisfied that the original claim was accurate.

In these situations, the inspector will usually close the enquiry and arrange for the claim to be settled and the R&D tax credit and (or tax repayment) to be paid. If the inspector does not simply close the enquiry, then it is possible to reach an agreement in each of the enquiry focus points, and the enquiry then may be settled by negotiation.

Partly, this is because it is difficult to apply guidelines to developing science and technology. In other words, sometimes the guidelines do not cover everything because they cannot predict all the incredible innovations that will occur. 

In their latest update, HMRC announced that they are reviewing more claims in 2022 and will be using new measures from 1st April 2023 to help address anomalies and unforeseen consequences, as well incorrect, incomplete and fraudulent claims.

It does depend on a range of factors as to how long an enquiry will take and the standard time frame in anywhere between several weeks and several months.  

When a claim enquiry is in progress, there can be changes made to the methodology, and there will be an opportunity to alter the processes for record-keeping in preparation for any claims that are made later. Most companies that go through one of these enquiries typically utilise the feedback they are given from HMRC to streamline their future claim process.

The great thing about Alexander Clifford is that our team come from a variety of backgrounds. We take the skills of our team and use these to make sure that your R&D is completed with accurate information that reflects the company’s claim.

As we have detailed insight into the process that comes directly from the policymakers, we have been able to keep our enquiry level at less than 1%.

At Alexander Clifford our industry expert knowledge ensures that we submit robust and thorough applications which tends to lessen the chances of an enquiry in the first place. Having this expert knowledge allows us to prepare and submit claims that we know will withstand HMRC scrutiny. 

What happens within the enquiry will depend on the level of extra detail required. No matter what form this takes, it can feel like a daunting process which is why it is so important to us to support our clients all the way through. We know the guidelines inside out and this allows us to confidently support, clarify and reassure. 

With our expertise, we are best placed to carry out these negotiations and help to ensure your claim is successful.

Research and Development (R&D) tax credits are incentives introduced by the UK Government aimed at promoting innovation and technological advancement. They provide financial benefits and tax incentives to eligible businesses that engage in qualified R&D activities. These credits typically cover expenses related to research and development, including employee wages, supplies, equipment, and contracted research services. The UK government introduced R&D tax relief to stimulate economic growth and competitiveness by supporting businesses in their R&D efforts. The initiative encompasses two types of R&D schemes: the SME scheme for small businesses, and larger companies utilise the Research and Development Expenditure Credit (RDEC).

There are two different R&D schemes you can apply for, depending on the size of your business. 

The SME scheme:

The SME Scheme is designed for small companies with less than 500 staff, a turnover under €100m, and a balance sheet under €86m.

The RDEC scheme:

RDEC offers R&D tax credits to larger companies with a staff headcount over 500, a turnover of €100m or more, and at least €86m or more in gross assets.

As your business scales up or down, you may no longer meet the eligibility criteria for the previous scheme you received R&D tax credits from. 

These modifications will not impact your company’s status until the conditions are satisfied for two consecutive years. This period is commonly referred to as the ‘year of grace,’ allowing you to maintain your current status during the time when the thresholds are initially crossed.

However, there is one exception to this rule. If an SME is acquired by a large company or group, the year-of-grace provision is suspended, and the SME is considered a large company from the time of acquisition. This change in status applies for the entire period, not just from the date of acquisition.

This consideration is particularly crucial in sectors characterised by significant merger and acquisition activities.

Switching your status between an SME and a large company will have an impact on the overall benefit you receive from R&D tax credits. The rate of R&D tax credit varies between the SME R&D tax credit scheme and the RDEC scheme. 

Additionally, there are other distinctions between the two schemes, including the types of expenditures you can include in your claim and the relief mechanism applied.

A subcontractor is a business or individual engaged by a company to carry out specific work as a component of a larger project. In the context of R&D, subcontractors are brought on board to perform specific services related to the R&D project when there is a lack of in-house expertise to handle it. They are usually specialists in their respective fields.

Payments to subcontractors are typically made directly, without involving a third-party staffing agency.

EPWs (Externally Provided Workers) are temporary workers who are supplied to a company by an external entity. These workers function similarly to regular employees but are remunerated through invoices sent to the third-party staff provider, rather than being directly on the company’s payroll. You may have an EPW from a staffing agency, a connected company or a personal service company.

By ‘consumable items’, this refers to straightforward physical expenses eligible for claiming. Claims are limited to goods utilised or changed during R&D activities. Consumables encompass straightforward items like water, fuel, and power, as well as transformable materials, including laboratory chemicals that are converted into usable products due to the R&D. The expenses must be utilised in any activity recognized as R&D for tax purposes, which also covers ‘qualifying indirect activities.’ This definition is applicable to both the SME scheme and the RDEC scheme, regardless of the company’s size, be it small or large.

If a chemical is recyclable, it would not be excluded from the claim. However, if a physical item remains usable in its original form after R&D, its cost cannot be claimed. The fact that the item is no longer new would not qualify as a transformation solely due to its use.

A typical R&D claim will have a positive impact on cash flow. This isn’t the case for the SME scheme, if you’re not making a profit, your R&D tax credits will essentially partially or fully offset your pre-existing losses. This is important to consider early on in your R&D claim as it may be the case that the R&D scheme may not financially benefit your specific situation.  Sometimes, preserving or increasing losses can be just as valuable as obtaining cash, especially if these losses can be utilised for tax relief. With the RDEC process, which involves caps and offsets, a claim might result in the creation of an RDEC that can be carried forward. However, converting this into cash will depend on future calculations in subsequent years through the RDEC steps. For profitable companies, RDEC will always have a positive impact on cash flow since the first step offsets against corporation tax.

The de minimis state aid impact can have a significant effect on an R&D claim, particularly for small and medium-sized enterprises (SMEs). De minimis 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. 

A company cannot claim SME R&D tax credit for costs within a project that are funded by De Minimis aid. It is essential for businesses to be aware of the de minimis state aid impact on their R&D claims and carefully monitor their funding sources to avoid crossing the threshold and potentially losing out on R&D tax incentives.

The UK government offers R&D tax credits as tax relief to encourage small and medium-sized enterprises to invest in research and development activities. The government encourages research and development activities, whether or not you’re making a profit, because they contribute to economic growth, technological advancement, and the progression of society with opportunities for efficiency and sustainability across all industries. So it is safe to say that R&D tax credits allow you to take actions based on your innovative thinking without being held back by cost, ultimately enabling you to expand your business operations by hiring top-notch talent, investing in marketing, offsetting expenses, or acquiring the necessary machinery. Learn more about the SME scheme.

To qualify for SME status and be eligible to claim R&D tax credits, you need to meet the following criteria: 

• Less than 500 staff 
• A turnover of under €100 million 
• Or a balance sheet total of under €86 million 

Wondering why the values are in Euros? Well, the definition of SMEs was originally established by the European Commission. However, it’s worth mentioning that R&D tax credits have no affiliation with the European Union or its funding in any manner, irrespective of the origin of the SME definition.

For companies claiming R&D relief for periods beginning on or after 1st April 2023, their entitlement will be calculated on the basis of the new rates implemented by HMRC: 

• SMEs trading at a profit or loss can calculate their entitlement based on the R&D enhancement. The R&D enhancement is calculated on 86% of the qualifying expenditure which is then added back onto the qualifying expenditure to give you the enhanced expenditure (186%).
• Entitlement Payable – If the normal taxable profit/trading loss is lower than the R&D enhancement, it leads to a trading loss after R&D. In this case, the surrenderable loss will be a loss after trading relief, and the entitlement payable will be calculated at 10% of this amount.
• Corporation Tax Refund – If the normal taxable profit/trading loss exceeds the R&D enhancement, it leads to a trading profit after R&D with no surrenderable loss. In this case, the entitlement payable will be calculated at the Corporation Tax rate of 25% of the R&D enhancement. This can result in a Corporation Tax reduction or refund if the tax has already been paid.

There are differences in the rate. From the changes in April 2023, the RDEC rate increased from 13% to 20%, the SME additional deduction rate reduced from 130% to 86%, and the SME payable credit rate decreased from 14.5% to 10%. Therefore your benefit will differ depending on which scheme you’re eligible for. 

The main difference between claiming as an SME versus under RDEC is in the accountancy treatment. For SMEs, the tax credits are non-taxable and will only affect your tax liability. They are a below-the-line benefit but under RDEC, it’s an above-the-line benefit. Under RDEC, the R&D credits that companies receive under RDEC will be classed as credits when calculating the pre-tax profit.

When an SME subcontracts R&D work to other SMEs with the same shareholders, it impacts the costs that can be claimed. Typically, when you subcontract R&D work, up to 65% of the costs can be included in your R&D tax credit claim. However, if the subcontractor and your company share the same shareholders (considered connected parties), different rules apply.

For unconnected subcontractors, you can claim 65% of the costs related to the R&D work they perform on your behalf. If only a portion of their services is R&D-related, you can only include 65% of that specific proportion in your R&D tax credit claim.

On the other hand, for connected companies (having the same shareholders), the calculation becomes more complex. The amount you can claim may be more or less than 65%, depending on the actual costs involved. Seeking professional advice is recommended to ensure accurate capturing of these costs.

For R&D work subcontracted to a connected party, you can claim R&D tax credits based on the lower of either the payment you make to the subcontractor or the relevant expenditure of the subcontractor.

Yes, for SME claims only, these considerations are significant. 

If an SME receives State Aid for an R&D project, then every £1 of State Aid received means that none of the project costs can be included in an SME R&D claim. However, the project may still be claimed under RDEC if it meets the RDEC rules (except for mainly work subcontracted to other companies, which cannot be claimed under RDEC).

If a grant does not qualify as State Aid, for instance, if it is not awarded or administered by the state, such as an EU Horizon 2020 grant, or if it falls under De Minimis and the company has not exceeded the threshold where De Minimis grants are treated as state aid, then an SME can claim the grant-funded portion of the project under RDEC and the remaining portion under the SME scheme.

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 remains unchanged until the second year when it is achieved. For instance, if an SME grows organically and becomes a large company in year 1, and this status continues into year 2, the company can make an SME claim in year 1, but in year 2, it would need to claim under RDEC, as they no longer meet the SME eligibility criteria.

However, if the change in status is a result of a takeover or sale of a group company, 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. What matters is the company’s status in terms of the SME test thresholds at the end of an accounting period.

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.