Points to consider when claiming R&D tax credit
Q I Like the idea of R&D but think it's too expensive? Are there tax credits available to ease the pain?
A With this continued increase in R&D expenditure by companies it is imperative that companies are aware of, and avail of, all support available to them.
One of the key supports available to reduce the cost of carrying on R&D is the R&D tax credit scheme. This scheme provides a 25pc credit on eligible expenditure to companies.
This credit can be used to offset corporation tax liabilities or, if there are no taxable profits, this can be repaid to companies in the form of a cash refund. These benefits make the R&D tax credit the most valuable corporate tax relief available, potentially reducing effective cost by up to 37.5pc. In claiming an R&D tax credit it is important to consider the following points to ensure a robust and audit ready claim is made:
1. Remember the deadline: In order to make an R&D claim the claim must be filed within 12 months of the end of the accounting period within which the R&D costs were incurred.
Once the 12 month window has passed there is no scope to make a claim or increase an existing claim. A simple tip would be to track your R&D activities and costs on a contemporaneous basis. You should also aim to review your potential R&D claim as early as possible after the accounting year end. This early review gives you the benefits of having prior accounting period activities fresh in the mind whilst also providing ample opportunity to address any issues or queries which may arise during the review process.
2. Documentation: Documentation of your R&D can be a key value-add in many different ways; from the perspective of IP generation, business continuity and sound management practice. It is also essential with regard to your claim. In submitting any R&D tax credit claim (R&D claim) it is vital that companies maintain contemporaneous documentation in support of the claim. Ideally, this documentation should include details of project planning, project tracking, and project time recording functions. Where possible, you should aim to align your internal documentation process with the documentation processes sought out by Revenue.
3. Understand the science: R&D claims stand or fall based on the scientific and/or technical merits of the activities and projects that underpin the claim. As such, I believe that the R&D tax credit scheme is one area of tax where the R&D staff within your company are fundamentally important to ensuring that a valid tax credit claim is made. An issue that we often encounter with clients is that internal R&D personnel do not understand what the key technical criteria are with respect to the R&D tax credit scheme.
4. It's a team effort: The compilation of an R&D tax credit claim requires a combination of scientific/ technical skills and finance/tax knowledge. Communication between and within both the finance and the R&D functions in terms of ownership and responsibilities is crucial. It is important that clearly defined tasks are assigned to relevant individuals and it is imperative that claims are internally and / or externally reviewed prior to submission in order to ensure that all relevant technical and financial information is harmonious and accurate. When using external advisors to assist in this process we would suggest that the advisors team should reflect this cross functional capability also, as peer to peer discussions tend to be most effective.
5. Be aware of the evolving landscape: Between 2011 and 2015 Revenue have made a fundamental change in their interpretation of some key elements of the R&D tax credit scheme, with no legislative changes having been made in these areas in the interim. As such, where companies wish to make a claim which is in line with Revenues current practice it is necessary to keep abreast of updates to the scheme and associated legislation.