8 common mistakes with R&D tax relief claims

Over our almost 20 years in business, the Myriad Associates team has worked with businesses of all different shapes and sizes. From small companies in niche industries to large multi-sited organisations, we understand the need for all businesses to benefit from research and development (R&D) tax relief effectively, and to avoid mistakes.

If you’re concerned about any of the points we raise in this article, would like to ask a question or are ready to start your claim then please do get in touch today. Your innovative business could soon be thousands of pounds better off.

In this blog, we take a look at 8 of the most common mistakes companies make when preparing an R&D tax credit claim:

1. Not making a claim at all

Successful R&D tax relief claims offer the chance for companies to pay less tax on their income, putting more money back in their pockets. This means that eligible businesses that fail to claim will likely miss out on a serious amount of cash; which can be spent on anything, including further investment in R&D. Can you afford not to claim?

2. Believing that their company or project is not eligible

The fact is that all UK companies in any industry and of any size can benefit from R&D Tax Credits. There’s no minimum or maximum spend or claim amount, and it doesn’t matter whether the company made a profit or a loss - it’s all about technological/scientific advancement. You can find out more on our R&D Tax Credits page.

3. Not developing a product from scratch (that's OK - you may still be able to claim)

The important point with R&D Tax Credits is there needs to be some sort of scientific or technological innovation involving risk. This means that many companies will use R&D to create a brand new product from scratch, but that’s not the only way R&D tax relief will be awarded. Some companies create a new process, system or service instead. Others will take a product, service or process that’s already in existence and use innovative R&D to improve it. This could be an upgrade or a different product line for instance. Either way, R&D Tax Credits may well be due.

4. Not claiming under the right scheme

The R&D Tax Credits scheme is subdivided into two branches: the SME scheme (or small/medium sized businesses) and the Research and Development Expenditure Credit (RDEC) scheme for larger companies.

Before making a claim, it’s essential to understand which of these branches your business comes under. Legally, HMRC considers a larger company to have over 500 employees, and a yearly turnover of more than €100 million OR a balance sheet above €86 million. A company falling below these criteria is considered an SME and should typically use the SME branch of the scheme (depending on state aid). Find out more in our recent blog: What's The Difference Between The SME Scheme And RDEC?

5. Not understanding how state aid affects R&D Tax Credits

This one follows on from point 4 above. If a company has received a notified state aid grant then it isn’t eligible to receive tax relief under the SME scheme for the project that’s been funded by the grant. Instead, it will need to use the RDEC scheme regardless of size, assets and turnover. If your grant was non-notified state aid, your project’s eligibility for R&D Tax Credits is dependent on the proportion of funding that can be attributed directly to the grant.

If you’ve received state funding, get in touch so we can help as this can get confusing!

6. Not maintaining accurate records

Claims for R&D Tax Credits can be made up to two years after the end of an accounting period.  For instance, if your accounting period finished on the 31st December 2019, you have until the 31st December 2021 to apply.

However, like all accounting activities accuracy in your record keeping is vital. It will make up a big part of your R&D Tax Credits claim, not just in terms of providing figures but also in explaining the project itself and why you believe it is eligible. Well maintained records not only help you make a fully optimised claim with nothing missed off, but it also helps you answer any queries HMRC comes back with. The more information you have available, the easier the claims process will be.

In addition to accounts, you should also have ready access to things like project planning information, weekly production schedules, technical specifications, CAD drawings and revisions and any software architecture documentation.

7. Inaccurately accounting for workers outside of the company

Some companies undergo all their R&D projects internally using their own employees, but many others require work done by external parties. When making an R&D Tax Credits claim, accounting for this is complex but it’s crucial you get it right. Something as innocuous as IP ownership and clauses around the future use of any IP can potentially kill off an entire R&D claim. It is also incredibly important to understand the differences between subcontracted R&D and work done by Externally Provided Workers (EPWs). Addressing this properly in the early stages of a claim can ensure R&D claims are maximised, particularly under RDEC where subcontractor restrictions exist.

We cover this in our YouTube Video: Subcontractor Costs

8. Not using the services of R&D Tax Credit specialists like Myriad Associates

Working your way through an R&D Tax Credits claim is notoriously hard work. Even if you’re fully up to date with everything required, the process can be extremely monotonous. Mistakes are very easy to make and unfortunately, even the smallest of errors can lead to substantial delays and financial costs, especially if HMRC asks questions or launches an enquiry into your tax affairs. This means that unless you have the time and expertise to get it right first time, it’s highly recommended you speak to an R&D tax relief consultancy to assist you in claiming your maximised amount of relief.

At Myriad Associates we not only have the in-depth knowledge and experience to complete your claim properly, but we can maximise it too. This means you know you’ll receive all the money you’re entitled to, and we’re proud of our 100% success rate. Essentially, we take the worry and the hassle out of claiming for R&D Tax Credits, and can answer all your questions along the way - so one less thing on your to-do list.

Call the UK-based R&D tax relief experts at Myriad Associates today on 0207 118 6045 or use our contact us page. It could be the most financially sound decision you make all year.