As R&D experts, the team at Claimer want to help your company claim the largest amount of cash that it can. But, as with many things in life, the best way to do this is by planning ahead.
Thankfully, most of these tips are not very difficult to implement, but too often we see companies leaving money on the table because they aren’t fully aware of the quirks in the scheme - follow these tips and don’t make the same mistakes!
1. Get registered in the UK
Let's start with the basics. If you want to claim R&D, you need to have your business registered with Companies House in the UK. If you don't yet have a UK-registered company, don't panic! This is easy to sort via Companies House. It takes about 30 mins to set up your company and costs £12. Easy. (Take advice and care to make sure this is the most appropriate option for your business.)
2. Record your time… for a month
To make an R&D claim, you need to show who has actually done R&D work in your company, and work out roughly what proportion of time they have spent on it. This is much easier to do if you’ve recorded it somewhere.
For those of you that don’t use a fancy project management system, the next best thing is timesheets; they’re a basic but great tool for this purpose. If your company uses them already, create a category called R&D and get your staff to fill in the details.
If your company doesn't use timesheets, then it’s really easy to start. We’ve even created a free R&D timesheet template to get you going, alongside an example.
But don’t worry, we don’t expect you to log every activity forever - you have enough to do! You only need to actually record your R&D activity for 4 weeks overall. That gives R&D specialists like us enough of an idea of what you’re doing to make a claim.
To get a good representation throughout the whole year, ideally you should ask each of your staff to record 4 total weeks of activity, but spread each week out. For instance, if your accounting period is January to December, record one week in January, one week in April, one in July, and one in October.
By doing this, Claimer can far more easily build up a picture of who's doing what.
3. Keep those receipts!
Receipts. They're the key to claiming back R&D, so make sure you're keeping yours somewhere that's easy to access. We recommend Receipt Bank.
Receipt Bank keeps copies of invoices securely and uses clever software to enter invoices and receipts into your accounting systems automatically. Receipt Bank also has an app which allows you to take pictures of invoices and receipts on your phone.
If you’re using a service like Receipt Bank, you don’t need to keep paper copies of invoices. HMRC actually prefers you to keep digital invoices, photos, emails than paper invoices. Easier all round.
4. Put everyone on the payroll
Pay all your R&D workers through the payroll as employees to maximise the cash you can claim. Although running a payroll involves paying taxes, admin and extra responsibilities, with an R&D claim it normally works cheaper than paying by other ways.
As a founder, you may have heard that it’s cheaper to pay yourself through a dividend than through the payroll. But this isn’t true if you’re doing R&D as a founder. The R&D rules actually prevent you from claiming cash on dividends, so to make the most of your claim, get yourself on the payroll.
5. Don’t pay for your employee's expenses
At least not at first. Hear us out... No, we’re not suggesting you should be a totally unreasonable boss. If you plan carefully, you can claim cash back on travel, food and drink costs. Here's what you need to know:
First, you can only claim the cash back on expenses for employees on an R&D-related trip. So for example, the commute to and from your main office, and food or drink expenses when there don’t count, even if you’re doing R&D.
But for an R&D related trip to an off-site meeting or another company branch, the associated food/drink/accommodation costs do count.
Second, and this is the weird one, the travel, food and drinks must be paid by your employees first. They can then claim back the cost of travel, food and drinks directly from the company.
That means every time your employees need to travel for work or stay in hotels, say for an R&D related meeting, make sure they pay for it themselves (with their own money). After that, the company can pay them back.
We know this may seem strange, which is probably why so many companies planning to claim for R&D don’t realise and lose out, but it’s one of those quirks in the scheme that’s well worth knowing in advance. Consider yourself clued up.
6. Know your software
Any software you use in R&D activities qualifies for tax credits. This includes:
- Specialist R&D software e.g. AutoCad
- Non-specialist software that supports your R&D activities e.g. Office or Google Docs
- Services that include software e.g. some server costs are considered software. Help on this could fill another article, but in the meantime, just pop us a message if you need help with this.
We recommend keeping brief records of how you use software, so we can work out the percentage that qualifies for R&D relief. Again, to make the record keeping as easy as possible, you only need to keep records for 4 weeks, spread out throughout the year.
7. You don’t have to take the money
Getting a cash payment from HMRC out of your R&D claim isn’t always the best way to get the most out of your claim. In some cases, instead of taking the cash straight away, you can actually save more in the long run by keeping the R&D benefit and using it when you are next profitable on another one of your company’s accounting periods.
If you don’t need the cash straight away, this is a smart way the scheme allows you to save more - by paying less tax overall.