If you’re struggling to get your head around research and development (R&D) tax credits, you’re not alone.
Many accountants want to help their clients with R&D tax credit claims, but the complexity of the scheme and the increase in challenges from HM Revenue and Customs (HMRC) make R&D a particularly tricky area of tax.
Our specialist R&D tax consultants have outlined the initial steps you should take to help your client apply for R&D tax credits.
Establish eligibility
Your client’s project must be innovative and seek to contribute to the overall knowledge of a particular industry by:
- Looking for an advance in the field.
- Overcoming or trying to overcome a scientific or technical uncertainty.
- Contributing knowledge not already held or easily worked out by another expert in the field.
In short, your client may be able to submit a claim if they can demonstrate sufficiently that their project makes a genuine qualifying contribution to the wider field.
It cannot, for example, solve an issue only facing your client’s operations, or just apply an existing solution in a new context.
However, this concept is not well understood by many businesses, so you will need to communicate this clearly to clients seeking to claim R&D tax relief for their projects.
This communication is the core of best practice when advising your clients.
Maintaining integrity is essential to give your clients faith in each claim submission.
Calculate qualifying costs
You can only claim R&D tax relief on qualifying expenditure related to your client’s project.
For example, the costs of staff directly involved in R&D work, consumable items used, expenses for clinical trial volunteers, and data licence and cloud computing costs are all eligible for R&D tax relief.
However, costs for work that would have been done anyway (such as administrative or payroll management), rent, capital expenditure, and the costs of patents and trademarks do not qualify.
Subcontracted R&D costs are eligible for R&D tax relief, but it is important to establish which party has the right to claim.
Many R&D projects are now carried out by both the controlling business and contracted support, so working out who gets to claim R&D tax relief can get tricky.
In some instances, it will be clear which party has contracted out their R&D activities (i.e. the customer), but some commercial relationships can obscure these definitions.
To establish whether your client is the customer or the contractor, you should consider:
- Intention: Any R&D carried out must be explicitly intended within the contract or agreement, or else the contracted party may argue that they have carried out the R&D themselves.
- Risk: The uncertainty of R&D makes investing it in an inherent financial risk. Therefore, the party that finances the project is typically considered to be the contracting party.
- Property: The intellectual property for the R&D project usually belongs to the contracting party.
Advising clients on R&D tax relief can be difficult for this reason, since their expertise may be used to identify where R&D needs to take place, despite nominally being the contractor.
Get support from an expert R&D partner
Once you’ve identified your client’s eligibility for R&D tax relief and calculated the qualifying costs, it’s time to prepare the claim.
You will need to write a detailed report outlining the R&D activities, the technological challenges encountered, and how the project aimed to address them.
But how do you make sure you’ve included everything? What if you’ve made a mistake in your calculations? Is the report clear and understandable while also being sufficiently technical?
Bringing in an expert R&D partner like randd uk can provide the reassurance and confidence you need.
With our R&D tax consultants, you’ll benefit from a specialised team that is specifically dedicated to your client’s project.
We offer fully transparent bespoke consultations – if we have any concerns around a claim, we will not put it forward.
If we think your client’s project is eligible, we’ll conduct thorough research to build a strong claim that maximises tax credit value and minimises
We perform three different stages of risk assessment – at sign-up, at the first technical meeting, and again before submission – to minimise the risks of HMRC enquiries as much as possible.
Once the claim is submitted, we’ll handle all communications with HMRC. We’ve successfully defended hundreds of claims against enquiries, so you can trust us with your client’s claim from beginning to end.
