How to Claim R&D Tax Credits | The Application Process for the R&D Tax Relief for SME’s

If you’ve read earlier articles on this site – such as what is R&D and what costs can I claim – this is the point where we piece them all together. Now I’ll show you how to claim R&D tax credits. To make a claim, you’ll need to articulate to HMRC how your company, your project and the associated costs, qualify for the tax credit.

Worth noting that this article focuses on how to claim R&D Tax Credits – the scheme for small and medium sizes businesses. The process for RDEC – the scheme for companies with over 500 employees or turnover higher than €100m – differs slightly.

How to Claim R&D Tax Credits

You’ll need to do two things when making a claim. Both of which are covered in detail below.

1. You should submit an R&D tax credit report to HMRC. This will explain to HMRC what R&D you’ve done and what costs you’ve incurred.
2. You’ll need to submit the report with your corporation tax return for the year the work was conducted. Don’t worry if you’ve already submitted your return - you can amend it up to two years after the end of the accounting period you’re claiming for.

1. Writing an R&D Tax Credit Report

The aim of the report is to explain to HMRC how your project qualifies as R&D as per their definition. As well as how the costs you’ve incurred have been calculated, and to confirm they are all claimable. If you're not sure how to do that - check out these links: what is R&D and what costs can I claim.

The information you’ll need to include in your report is:

• What your company is, and what you do. You should also include your company number and unique taxpayer reference
• The accounting period(s) for which your claiming and when the R&D took place
• Why your eligible for the R&D tax credit, including details of your company size, and any state aid you may have received
• What R&D project(s) you’ve conducted, and how they meet the eligibility criteria (see this article). Make sure you include the uncertainties you’ve addressed and technical advance you’ve achieved
• Details of the industry professionals you’ve consulted about the R&D, or that have worked on the project. HMRC refer to these people as 'Competent Professionals'
• What costs you’re claiming for, what type of cost they are (see this article) and how you’ve calculated the amounts which are claimable.
• What your enhanced expenditure (see this article) is for your claim. It’s calculated as 230% of your claimable costs. This is also the figure that you’ll include in your corporation tax return.

Top Tips

A few things to bear in mind when you're writing the report:

• There is no specific format that is required. But presenting the information clearly and with a logical flow will help HMRC to quickly interpret and approve your report.
• Try to avoid technical industry language. The report needs to be understood by an inspector at HMRC, who probably won’t have the same expertise as you.
• Use HMRC’s terminology – ensure you address the uncertainties and technical advances that were achieved as part of the R&D project.
• Any evidence you can include to prove you've conducted the work is helpful. Think about pictures, screenshots of emails, contracts, plans and more.

2. Submitting your Corporation Tax Return

The corporation tax return form (CT600 - available here) is how you formally notify HMRC of your R&D claim. You will be required to include your enhanced expenditure – which is calculated as 230% of your claimable costs, as well as the refund in corporation tax, or payable tax credit you wish to take.

Normally – your accountant will make any amendments to your corporation tax return on your behalf. If you work with Zest – we can deal with your accountants directly about doing so. Your accountants will need to submit your R&D Tax Credit Report and corporation tax return at the same time.

After Submitting Your Claim

So you've written your report, and submitted it with your corporation tax return. You now know how to claim R&D tax credits. What next? Well - now you wait.

HMRC aim to pay 95% of claims within 4 weeks, although refunds in corporation tax can and do take longer. If HMRC wants to open an enquiry, they aim to do this within 60 days. Enquiries – a word that casts dread on any business owners mind. However, the risk of an enquiry can be minimized - I cover this in my article: How to Avoid an R&D Tax Credit Enquiry and Still Get the Best Results.

Assuming you don't receive an enquiry letter - you should notice the money arriving in your nominated bank account, with interest applied where relevant. If it's been more than 8 weeks - call HMRC to follow up on your claim.

Should I Get Professional R&D Tax Advice?

Well - to start with - I'm probably biased. But let me explain why I think the answer should be yes.

The aim of this article, and others on the knowledge bank, is to explain the R&D Tax Credit claim process as clearly as possible. But writing a claim isn't easy. In my experience, claims made by businesses or generalist accountants get less than half of the return they are due. That isn't to mention the extra risk of mistakes that could lead to enquiries or fines.

R&D Tax Relief is a very specific area of tax legislation, and getting specialist advice is almost certainly the best way to guarantee the best return. But again - I'm biased. With the information available on this site - you should be able to make an R&D Tax Credit claim yourself. But if you do want advice from a leading, specialist R&D tax advisor - get in touch.