Risk summary for non-readily realisable securities which are shares:

The scheme allows companies to claim back up to 33% of the money they spent on research and development. It can even be claimed on unsuccessful projects.

On average, it would take HMRC 4-6 weeks to process your R&D claim and in the case of payable tax credits, another 1 week for the money to arrive in the nominated bank account after the claim has been submitted.

R&D relief must be claimed within 2 years of the accounting period the R&D took place. For example if your accounting year end is 31 December 2019 you have until 31 December 2021 to submit your claim. This means you are able to submit an amended tax return for a previous period if you may have missed out on potential tax credits or tax savings.

First and foremost, any company participating in any kind of R&D (and R&D is a very broad definition, far from being only software or deep tech) is very likely eligible for claiming back up to 33% of your expenditure on R&D in the form of corporation tax deduction or cash payments from HMRC.

To qualify the company must be carrying out R&D work in the field of science or technology. The relief is not just for ‘white coat’ scientific research but also for ‘brown coat’ development work in design and engineering that involves overcoming difficult technological problems.

The qualified R&D work must be part of a specific project to make an advance in science or technology. It cannot be in a theoretical field – such as pure maths.

The project must be clearly related to your company’s trade – either an existing one, or one that you intend to start based on the results of the R&D.

There are a few elements you’ll need to demonstrate in your R&D claim to show how your project:

1. Looked for an advance in science and technology
2. Had to overcome uncertainty
3. Tried to overcome this uncertainty
4. Could not be easily worked out by a competent professional in the field

R&D tax credits are claimed through your Company Tax Return (CT600) which is normally submitted on an annual basis and based on the figures from your Statutory Company Accounts.

There are two components of an R&D claim and they are submitted as appendices to the Company Tax Return.

Technical Narrative

Your Technical Narrative is a document that has two main purposes. First of all it is used to justify why the work done by the company qualifies for R&D tax relief. It should outline the work done by the company, which technical uncertainties were encountered and how you attempted to overcome them. You do not need to be successful in overcoming these uncertainties to qualify for R&D tax relief, an aborted project or work done before a change in direction will still qualify.

Secondly it is used to justify the size of your claim by outlining the number of projects that took place in the period, the amount of time spent on those projects (employees or contractors) and any other expenditure that may be relevant.

R&D Calculations

This is a breakdown of costs and the percentage of those costs that relate to R&D. It should include any qualifying costs relating to employment (Salaries, Employer National Insurance and Employer Pension Contributions), contractors, software, consumables, prototypes and any other relevant expenditure. These figures are then used to calculate and show the uplift on your tax allowable R&D expenditure and the size of the tax credit or tax saving

Direct R&D staff costs

You can claim for Gross Salaries, Employer NI Contributions and Employer Pension Contributions for your PAYE employees engaged in your R&D project. This covers employees who undertake ‘hands on’ R&D work and the proportion of supervisory and managerial time spent specifically directing such employees in those activities.

Support staff costs, for example administrative or clerical staff, do not qualify, except when they relate to qualifying indirect activities. These can be activities like maintenance, clerical, administrative and security work.

Externally provided R&D staff

You can usually claim up to 65% of the payments made to the staff provider, in a case where your staff costs are paid to an external agency. Here as well, the eligible costs are for staff who are engaged in the R&D project.

Subcontracted R&D

SME Scheme: You can generally claim for up to 65% of the payments made to subcontractors. The subcontracted work may be further subcontracted to any third party.

RDEC Scheme: R&D expenditure subcontracted to other persons is generally not allowable unless it is directly undertaken by a charity, higher education institute, scientific research organisation or health service body — or by an individual or a partnership of individuals.

Consumable items

You can claim for the cost of items that are directly employed and consumed in qualifying R&D projects. These include materials and the proportion of water, fuel and power consumed in the R&D process. Costs of materials incorporated in products that are sold are not eligible for relief.

Software

You can claim for the cost of software that is directly employed in the R&D activity. Where software is only partly employed in direct R&D, an appropriate apportionment should be made.

Prototypes

If you are creating a prototype to test the R&D being undertaken, the design, construction and testing costs will normally be qualifying expenses. However, if the prototype is also built with a view to selling the prototype itself (such as the construction of a bespoke machine), this will be considered as a production and outside the R&D scheme.

In that case you need to work out the split between R&D expenditure and production costs. For example, the construction costs and materials consumed would not be qualifying expenses, but design, modelling and testing costs could still qualify.

Clinical trial volunteers

Pharmaceutical companies and research organisations often make payments to volunteers taking part in clinical trials.

No. This service is not covered by the Financial Services Compensation Scheme (FSCS). As it is not a regulated activity.