WHAT IS AN R&D CLAIM, AND HOW IS IT BENEFICIAL FOR YOUR BUSINESS?
R&D tax relief schemes are designed for companies of any industry seeking innovation through taking risks. These schemes are a kind of reward or incentive for businesses contributing to the advancement of science and technology in the UK. Every year numerous companies from every domain make the R&D claim and receive a significant amount of R&D tax relief and R&D tax credits. R&D tax relief schemes are very beneficial and lucrative for businesses. They save a considerable amount of money that you can reinvest in your research and development activities and keep moving your business ahead!
WHAT IS AN R&D CLAIM, AND HOW IS IT BENEFICIAL FOR YOUR BUSINESS?
The area with the most ambiguity in the R&D claim is qualifying criteria. Companies hesitate from claiming because they are unsure if they qualify or not. In simple words, according to BIS guidelines, to be eligible for an R&D claim, the company should be undertaking research and development projects to seek resolution of scientific or technological uncertainty which was not readily deducible even by a competent professional. And should be seeking scientific and technological advancement through creating new, advanced and improved products, services, or tools.
WHAT ARE THE QUALIFYING R&D ACTIVITIES & EXPENDITURE?
You can make an R&D claim for your qualifying research and development projects, and the value of your R&D claim is calculated according to your eligible R&D expenditure. Qualifying R&D activities are the ones that are directly related to the R&D project. Some of the common direct qualifying research and development activities are:
- Product design process and development
- Prototyping and clinical tests
- Resolution of a technical or scientific problem
- Improving process or product
- Addressing scalability or security issues
- Testing and trials
- Software development
Qualifying Direct R&D Expenditure, which you can include in your R&D claim, are:
- The cost paid to all the employees that were directly engaged in the research and development project. Employees’ insurance and pension are also eligible for the claim.
- Wages of external staff who have contributed to the R&D project.
- Via the SME R&D tax relief scheme, 65% of the cost paid for subcontractors for the R&D project can be claimed.
- The cost of all the materials that are used directly for the R&D project and producing prototypes qualify for the claim.
- The cost of software bought or created to support R&D projects can be a part of the claim.
WHAT ARE THE INDIRECT QUALIFYING R&D ACTIVITIES?
Due to a lack of knowledge of HMRC guidelines, businesses making R&D claim often miss out on a large amount of R&D tax relief. You can significantly maximise the value of your claims by including the indirect qualifying activities in your R&D claim. Indirect qualifying R&D activities are those activities which do not directly contribute to the resolution of scientific or technological uncertainty but still are part of the research and development project. Many of you are still unaware of these indirect activities and costs, which can substantially increase your reward. This blog intends to inform you regarding such qualifying costs and activities.
According to HMRC guidelines, indirect activities which are eligible for the R&D claim include:
• RESEARCH & INFORMATION SERVICES
Research conducted for the R&D project and data collection done for the purpose of the eligible project also qualifies for the R&D claim. Moreover, eligible activity inculcates the preparation of the report of R&D findings. Therefore, all the research work done for data collection to devise the latest technical or scientific testing and sampling procedures are also indirect eligible activities you should include in your claim.
• R&D SUPPORTING ACTIVITIES
Activities that are not directly part of research and development work but they do contribute to carrying out R&D projects such as maintenance, administrative work, management, and security come under eligible indirect R&D activities. In addition, finance and clerical tasks are undertaken for R&D projects qualify as well.
• TRAINING
Additional training provided to the workers in order to facilitate the carrying out of an R&D project also qualifies for the R&D claim as it also indirectly supports R&D activities. Therefore you should include training costs as eligible expenditures.
• FEASIBILITY STUDIES
Research and development involve high risks; therefore, feasibility studies are done to determine key elements and principles of a proposed project to build effective implementation strategies.
• ANCILLARY ACTIVITIES
Ancillary activities are significant for research and development. It includes paying staff, maintaining R&D equipment, taking care of the operating site and taking laboratories on a lease.
All the expenditure related to the above mentioned indirect qualifying activities is eligible for the R&D claim. It should be included in the claim according to its relevant category, such as staff cost, material costs, subcontracted R&D etc.
WHAT DOES NOT QUALIFY FOR THE R&D CLAIM?
The following activities do not qualify for the R&D hence should be avoided while preparing your claim:
- Non-scientific and non-technical advancement in the product or process.
- Manufacture and delivery of services and goods.
- Administration and support services.
- The commercial part of the project.
- Support services irrelevant to research and development, such as transport, cleaning, security etc.
SQUARE FINANCE
All this seems a bit complicated and daunting, right? Are you still confused about whether your project qualifies or not?
At Square Finance, experienced R&D tax specialists are always available to assist you in making the R&D claim. We assess your eligibility and prepare fully maximised and compliant claims capturing all the hidden qualifying costs using our experience in the field. So contact us now to get maximum R&D tax relief without any stress of eligibility and preparation struggles of the claim.