RDEC considerations

How is RDEC more beneficial than SME R&D tax credits?

The RDEC - Research and Development Expenditure Credit - scheme offers two primary advantages. Firstly, businesses can account for the credit above the line in the P&L account to provide positive profit visibility in the business accounts. Secondly, a cash credit may be payable from HMRC if the business has no tax liability. However, the rate you will be paid on the RDEC scheme is 12%, compared to 33% on the SME scheme. Our tax advisors at F.Initiatives can help you to assess the benefit of your R&D claim and to ensure the right scheme is pursued by your business.

What constitutes good record-keeping for R&D tax credits?

HMRC encourage regular claimants and bigger companies to keep thorough records. However, it does not expect every business to evidence an exhaustive process for record-keeping if that business had no other purpose for doing so at the time - for example, with a later R&D tax credit claim. Many businesses will choose the timesheet method as a good-practice record keeping method, but only where it is appropriate to the business. The best approach is to identify and implement a real-time recording system which allows you to identify qualifying R&D projects and the costs and expenditure associated with them and permissible for your claim. Remember, an R&D project will be forward-facing rather than retrospective in nature, with R&D occurring when work seeks to obtain a knowledge advance. Good processes for record keeping can vary greatly, and the team at F.Initiatives can help to advise your business on this particular situation as part of our year-round support for your R&D tax incentive and grant claiming activity.

Can I submit a claim if I have no R&D business records?

If you have no business records, making a claim becomes more difficult, but not impossible. HMRC will expect to see some evidence of R&D record taking as this is a core part of the research and development tax credit claim. Good records also tend to be conducive to a maximised value claim, as they allow HMRC to make an award with confidence when submitted with a quality, robust and thorough application that is well evidenced and correctly prepared.

If you have no specific R&D records for your project, however, you can sibmit a claim methodology that is admissible and bespoke to the needs for your business. You may still be in a position where you can claim tax credits as most R&D projects leave a paper trail within the business, even if specific reporting was not made at the time. In many instances, records can be gathered from existing sources to create your R&D tax credit claim. 

How should I record employee time in my business R&D claim?

Ideally, you should be able to provide records, such as timesheets or other data records, to evidence the amount of company time that has been spent on R&D. For the time that your employees spent on the business R&D project for which you are claiming R&D tax credits, you must make an allocation on a basis that is 'just and reasonable'. HMRC prefers to see contemporaneous records for R&D claims. Only costs of employees and directors who have been directly involved in qualifying R&D project activity can be included. Where only a proportion of time was spent in this way, that relative amount of time - and associated expenditure - can be submitted in the claim.

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