Research & Development (R&D) Claims - common errors

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Following a number of “dodgy” R&D claims which have resulted in companies having their claims for relief refused or restricted, HMRC have issued the following guidance on common errors:

Some of the common errors made in R&D tax relief claims include:

  • Project activities outside the scope of R&D for tax purposes are included in the claim.
  • Expenditure outside the qualifying categories is claimed
  • Staffing costs are claimed in respect of people who are not employees of the company (however, consider whether the expenditure qualifies as expenditure on externally provided workers).
  • Claims are made in respect of overheads that do not qualify as consumable items or consumable stores.
  • Expenditure is claimed on a particular item for a period before it was in a qualifying category.
  • Special rules for connected parties are not applied.
  • Companies do not recognise they are not SMEs.

For the SME scheme only:

  • A loss previously surrendered for a payable tax credit is carried forward.
  • Unconnected subcontractor expenses are not restricted to 65%.
  • A payable tax credit claim is made for expenditure that only qualifies under the large company scheme.
  • No account is taken of subsidies or Notified State Aid.

Are you missing out?

If your business spends money developing or enhancing new products or services in science or technology, then you could receive a cash payment or a reduction on your Corporation Tax Liability.

For example:*

Qualifying expenditure                               £100,000

Additional tax relief at 130%                      £130,000

Total tax saving £230,000 at 19%             £43,700

*Figures correct as of April 1, 2021

NB: Please note that any R&D in receipt of funding classified as ‘State Aid’ may not qualify for the full tax relief above, but instead at a much lower rate.  If you are considering ‘State Aid’ funding, please contact us to discuss the implications before making a final decision.

There are a number of costs that qualify for R&D including:

• Employee costs

• Staff providers

• Materials

• Payments to clinical trials volunteers

• Utilities

• Software

• Subcontracted R&D expenditure

• Capital expenditure

Note: You must make any claim for R&D Tax Relief in your Corporation Tax Return or amended return.