HMRC will pay you back for your R&D spend

The R&D Tax Scheme is a Government backed incentive that allows technology companies to claim back a substantial portion of their R&D spend.

This is crucial for innovating startups to understand, particularly in the tech sector where the vast majority will be able to claim a successful cash refund or reduction in their tax bill. The scheme is administered and assessed by HMRC as part of the corporation tax regime.

The definition of R&D for tax purposes is dependent on the fulfilment of two key criteria:

  1. A project must be seeking scientific or technological advancements

  2. A project must be seeking to overcome technological uncertainty

When can I claim?

Usually it is only possible to make an R&D claim within two years of the end of the financial period in which the R&D activities were undertaken. For example, if your financial year ends on 31 December 2016, then you have until 31 December 2018 to make a claim for any R&D costs within that year. For this reason, it is always worth retrospectively reviewing any R&D activities at the end of a financial year.

How do I do it?

There are two aspects to making an R&D claim:

  1. Identifying any eligible costs to claim for. This includes salaries and contractor costs but there are a range of other expenses that can potentially be claimed.

  2. Producing a technical narrative to substantiate the claim and give examples of qualifying R&D activities.

This process is usually carried out by an expert who will take you through the requirements to make the claim and conduct a series of interviews to get the necessary information. They will then produce all the relevant documentation, including examples of your technical work to substantiate the R&D claim.

What are the common pitfalls?

HMRC review all claims based on the strength of the accompanying technical narrative and will consider whether the activities described are truly qualifying under the scheme. If a company is attempting to claim R&D tax relief for non-qualifying activities or attempts to claim too much, HMRC may conduct a further review, which can significantly delay or even disqualify the claim.