With millions in tax relief lying untouched and the doorway for back-claiming set to close this March, firms are now against the clock.

For every £1million spent on qualifying Research & Development, small and medium size firms can deduct £1.5 million in tax relief. Large companies can deduct £1.25 million.

Change in legislation 

There is a huge pot of money waiting for eligible businesses but, alarmingly, the UK is falling significantly short of the claims target set by the Government both in volume and value.

Even more alarming is the change in legislation announced by the Government during the Budget that means businesses have only until 31 March this year to claw back up to six years of tax relief. After this date, any back-claims owed will be lost for good.

So why are so few eligible businesses taking advantage? First, says David Marshall, Director of tax specialist Alma Consulting Group, there’s little awareness of what constitutes R&D.

Surprisingly, anything from iterative engineering developments to equipment, to software improvements could qualify, so hundreds of businesses are likely to be eligible without realising it.

Those that are aware rarely have the depth of tax-law knowledge or time required to wade through the 80-page compliance and judgment guideline regulations.

Secondly, if a claim is unclear or filed incorrectly, HMRC can fine the business up to 100 per cent of the claim – quite a deterrent when taking into consideration how complicated and painstaking the claim process is.

Scientific or technological advancement 

Marshall warns that this should not put you off, however, as it pays to take the time to find out if your firm is eligible. 

In simple terms, to qualify for R&D tax relief the business must prove that there was a scientific or technological advancement in mind from the start, that there were scientific/ technological uncertainties and that it was a systematic approach adopted rather than a fortunate accident that led to the final result.

Staffing costs, salaries, consumables, agency workers and subcontractors can be claimed for if all three boxes are ticked.

Finance directors who think their business qualifies should start by visiting the HMRC website to familiarise themselves on making a claim.

It is a lengthy and complicated process, however, and requires in-depth expert knowledge of the technology or science for which you are claiming.

Many FDs, CFOs and accountants take up the challenge with the mistaken belief that an R&D tax return is similar to a standard tax return. Marshall points out that it is not.

Pitfalls, uncertainty and bureaucracy 

To give you an idea, compiling a claim includes making notes on all development activities, liaising with relevant departments on R&D activity, mapping associated costs, ensuring costs are eligible, compiling a comprehensive report for the HMRC Inspector, outlining the technology and how it adheres to the guidelines, documenting all non-eligible activities and costs and compiling the tax computations for the CT 600 – and that is before any enquiries and negotiations that crop up post-submission. 

With all the pitfalls, uncertainty and bureaucracy involved – not to mention the threat of a heavy penalty if a right claim is made in the wrong way – the best way to ensure success is to call in an R&D claims expert who has extensive knowledge of the process and experience in making claims.

Look for an R&D tax specialist charging a percentage of the claim benefit rather than a flat fee in order to guarantee significant return.

Related articles

• How to claim research and development tax credits
• UK firms increase innovation spending

Related links

• HM Treasury
• Alma Consulting Group