We covered some of the basics of R&D tax relief for SMEs in our previous article, but let’s dig a little deeper and take a look at some of the key pitfalls to look out for when submitting an R&D tax relief claim on behalf of an SME.
Misunderstanding Eligibility Criteria
One of the most common mistakes SMEs make is misunderstanding the eligibility criteria for R&D tax relief. While it’s true that a wide range of industries can qualify, not all technological projects automatically meet the requirements. SMEs need to demonstrate that their projects involve a degree of uncertainty, and they must aim to achieve a significant advancement in the field. It’s essential to consult HMRC guidelines as well as performing checks against external resources to make sure that you have a clear idea of what work does and does not qualify.
Failure to Keep Accurate Records
Proper documentation is vital when applying for R&D tax relief. Many SMEs make the mistake of not keeping detailed and accurate records of their R&D projects, expenditures, and outcomes. HMRC requires clear evidence of the R&D work in order for your claim to be deemed successful. This includes project plans, research notes, trial results, and financial records. Failure to maintain comprehensive documentation can result in delays, further questions, or even outright rejection of the claim. Putting a diligent record-keeping system in place from the get-go can help ensure that you have all the information that you need throughout the course of submitting a claim.
Inaccurate Cost Calculation
Calculating eligible costs for R&D tax relief can be difficult, and mistakes can lead to incorrect claims. SMEs often miscalculate the expenses related to their projects, either by including ineligible costs or leaving out eligible ones. HMRC lists what costs are eligible to be claimed for on their website. It’s crucial to work closely with your financial team or R&D advisor to ensure you accurately calculate qualifying costs for each project.
Misunderstanding when you can claim
R&D tax relief claims have strict deadlines that SMEs must adhere to. Failing to submit your claim within the specified timeframe can result in losing out on potential relief. To avoid this mistake, you should start the claim process early and establish a well-organised timeline for gathering all the required information and documentation. Whether you put important dates in an online calendar or keep a pen and paper diary, keeping your timeframes straight can prevent unwanted headaches.
Failing to prenotify HMRC or submit the Additional Information Form
HMRC has recently introduced two new processes which must be completed for all R&D tax relief claims. First, depending on when the claim period started and whether you’ve claimed before, you may need to submit prenotification for your claim. Also, every claim from the 8th August 2023 must be preceded by an Additional Information Form. Any claims that fail to properly account for each of these items will be denied outright. If you have enlisted the help of an advisor, they should be on top of these changes to the scheme. Still, it is a good idea to have some knowledge of these processes even if someone else is involved in preparing your claim.
Not Seeking Professional Assistance
Understanding the complexities of R&D tax relief can be challenging, especially for SMEs with limited resources. Many businesses make the mistake of not seeking professional assistance. This is probably the most important mistake to avoid, and doing so can save you a lot of work. An expert perspective from an R&D tax relief advisor or an accountant with expertise in R&D tax relief can help you accurately assess your eligibility, prepare your claims, and navigate the submission process, dramatically increasing the likelihood of a successful application .
We recently broke down some of the key factors to look for when choosing an R&D advisor. And when the time comes to engage a specialist to help you, our members directory shows you which providers are actively taking our specialist training in R&D tax relief.