If you are planning a new research and development project and managing the associated costs you may also be considering the R&D tax relief it might attract. To prepare for future claims you can take some simple steps now to help ensure that all the costs are taken into account and you get the maximum benefit.

If it’s your first claim on previously completed work then different advice applies, so give us a call.

Create records of the technical part of your R&D

The R&D claim is completed at the end of each tax year, as it depends on your corporation tax computations (whether you are profit or loss making). Meet with your R&D staff each month, and briefly note down what you’ve been doing, who has been doing it, and what challenges you’ve faced along the way. Detail can be added later, but a timeline and record of people helps a lot.

Think about how you employ R&D staff

You can claim higher values if you employ someone rather than contract to them (see here) but there is always the balance of the risk of taking on permanent staff versus the freedom of sub-contracting. If you do sub-contract then make sure the invoices are for specific pieces of work for the R&D; a monthly “consultancy fee” for example is not an eligible R&D cost. 

Are you thinking of using grant funding for your R&D?

This requires some careful thought. If funding applies at all to your project then the whole project’s costs are dealt with differently. For example, an R&D project costing £200k that you fund entirely yourself could see R&D tax relief benefits of £40k. If, however, you use £10k of grant funding and pay the other £190k yourself then your tax benefit could be reduced to £12k. It’s more complicated than that (some more here) but generally speaking the grant funding should ideally be around half the project costs or more, and you should contain the scope of the grant to as tight a technical focus as possible.

What about recording the eligible R&D costs? 

If your R&D uses heat, light and power then keep a simple log of what you are using on the project, for example “1 hour R&D autoclave use”. If your R&D uses parts that you order, then start a cost code for R&D and use it to record the ordered parts. Follow these general principles for any other costs that you feel are directly related to the R&D, and those that are not actually eligible due to quirks of legislation can be removed when the claim is built.


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