For qualifying businesses, the current R&D regime includes a tax deduction uplift of 130 per cent, in addition to a payable tax credit from HMRC of 14.5 per cent of the losses surrendered. And some businesses are needlessly waiting months for tax repayments to hit their bank account. For any business undertaking qualifying R&D activity, tax credits can be a very welcome cash flow boost.
Alarmingly, some tax professionals perpetuate the myth that R&D refunds involve reams of paperwork and that HMRC takes its time in processing the claims. We would urge businesses to reject such advice and to understand payments can actually be received with a matter of days. Do not be fooled into playing the waiting game.
A little knowledge is power and we have set out three steps which are key to the successful and efficient payment of R&D refunds. Armed with this information, businesses can confidently challenge misleading information from their appointed tax advisor.
Three top tips for speedy R&D refunds
(1) In the first instance, it is important to remember claims for R&D tax credits will only be successful if the business can demonstrate that what it is doing is innovative and creating an advance in science or technology – rather than simply an advancement in knowledge.
This might sound obvious, but it is imperative from the outset to be sure the business qualifies to take advantage of the R&D regime, rather than wasting time pursuing an invalid claim.
For information on exactly what is defined as qualifying activity, www.gov.uk is a great first port of call.
(2) It is now possible for companies undertaking R&D for the first time to get advance assurance from HMRC that they qualify for repayments by completing a simple online form. While care will be needed in completing the form and providing the best possible explanations for the R&D activity, this is well worth doing.
If HMRC do give a positive assurance to a company, they will not look at its R&D claims for a period of three years. This facility will speed up the acceptance of the company’s first claim and the turnaround time for any subsequent tax repayments.
(3) Perhaps the most widely held misconception about R&D refunds is that HMRC require long reports and huge amounts of supporting information. This is simply not the case; the process is relatively straightforward and is by no means onerous.
Firstly, companies must ensure the detail in its tax computation gives a clear breakdown of R&D expenditure. The supporting narrative can be held in reserve to use if HMRC ask any questions, rather than being provided with the claim.
Typically with R&D claims there are a series of questions which each and every company will have to address – questions which may well be asked by HMRC in support of the claim. In many cases claims are never questioned; however to ensure the claim is valid and to avoid any unnecessary delays in repayment, I would always ensure supporting information is available if required by HMRC.
The four questions are:
- What is the scientific or technological advance being sought?
- What are the scientific or technological uncertainties involved in this process?
- How does the project plan to deal with these uncertainties? and
- Why is the knowledge being sought not readily deducible by a competent professional?
Simon Littlejohns is tax partner at Friend.