There are nearly 50,000 businesses in the UK that claim R&D tax credits annually. But there are still many businesses that don’t know about the programme, or know about it, but do not think they qualify for it. Here are some tips on preparing an R&D tax credit claim
Identifying the R&D Project
This is where most companies fail. The identification of R&D projects is not always easy. It requires a solid understanding of the criteria, especially the criteria related to technological uncertainty. What is a technological uncertainty? How do you separate routine development from R&D? What if the new product you are developing was already developed by someone else? At what level do you identify an R&D project? What are the indicators that result in an R&D project?
The key is having a system in place. The Innovation Connection Program (ICP) by RDP Associates is a combination of algorithms that identifies R&D projects; a methodology that tracks projects, and a documentation system that is easy to maintain.
Identifying the Right Activity
Once an R&D project is properly identified, the claimant must then select the activities that are eligible based on work done by individuals involved in the project. Again, this is where most companies miss out on maximizing their claims and refunds. Generally, most businesses identify activities related to:
The above are basic examples of direct R&D expenditures but there are additional direct costs that are also allowed.
Other R&D tax credit eligible expenses that a business can claim can be classified as indirect R&D expenditures. These indirect expenditures can be included so long as they are in connection with the given R&D project(s). Examples of these include, but are not limited to the following:
- Scientific and technical information services such as the preparation of the original report of R&D findings;
- Maintenance, security, administering clerical activities, finance, and personnel activities;
- Ancillary activities essential to the undertaking of R&D;
- Training required to directly support an R&D project;
- Research by students and researchers carried out at universities;
- Research (including related data collection) to devise new scientific or technological testing, survey, or sampling methods, where the research is not R&D in its own right; and
- Feasibility studies to inform the strategic direction of a specific R&D activity
If you don’t claim these indirect R&D expenditures, you are missing out between 10% and 25% of additional R&D expenditures. Allocating these types of indirect expenditures is no easy task as it requires a good technical understanding of the R&D project to make this determination.
A Restaurant Chain Uncovers Overlooked R&D Projects
A multi-site restaurant that we recently assisted with its R&D tax credit claim had developed new and improved food products or services and processes that constitute advances in science and technology as per the BIS guidelines. These products, services or processes do NOT have to be cutting-edge food science solutions. For example, this company wanted to improve an existing food product by offering a healthier and cost-effective alternative. This project undertaking was deemed eligible for a claim based on the following activities:
- An iterative approach experimenting with healthier and cost-effective ingredients to ensure the recipe obtains the same savory taste and texture at each of its locations;
- Experimentation with several trials involving larger batch sizes in order to ensure the artisan appeal remained and also to ensure the product would taste the same with different, more health-conscious ingredients.
The result? This restaurant chain netted £180,000 in R&D tax credit benefits. When food service companies conduct food science research, many of their activities meet the criteria for claiming R&D tax credits.
We claim R&D tax credits for clients spread across 17 different industries. We also offer government grant services. Contact us for a complimentary assessment of your eligibility for R&D activities.