Tax breaks for innovative companies provide encouragement for entrepreneurs and tech developers to make the kind of commitment they might not be able to otherwise afford.
Innovation, research and development can be risky and expensive but could end up hugely profitable, as well as being at the forefront of the development of cutting edge technology.
The Government’s R&D tax credits provide companies with the kind of support to innovate their field of expertise.
It involves the submission of a claim via the Company Tax Return CT600 form, detailing the full amount of expenditure that qualifies for this type of support. You may also be eligible to make backdated claims.
In order for your R&D tax credit claim to be accepted, it’s important that you explain in detail that your company:
- Is looking for an advance in science and technology
- Has had to overcome uncertainty in order to achieve the desired results
- Is enclosing full information regarding how it has tried to overcome this uncertainty
- Has looked into a matter that couldn’t be easily worked out by a professional in the field
- Any claims must be accurate as often HM Revenue & Customs will randomly launch investigations
It makes up part of a review process to check that it’s behaving fairly, and properly distributing the money available for R&D tax incentives.
The reasoning behind HMRC opening a tax enquiry can vary. It could be for something related to the business itself, like a change of personnel or a significant change in the company’s figures. They may also have some questions about the work a company carries out, or about the technology or software it uses.
What are the common reasons for HMRC investigation?
- It wishes to review a tax return, which also includes a review of their R&D tax credit claim.
- There has been a larger claim submitted compared to the ones put forward previously.
- The tax authority is focussing on a particular sector or a type of technology, to make sure all claims are consistent.
- HMRC believes there’s an inconsistency and wants to check the credibility of a claim.
- Inconsistencies or inaccuracies in figures supplied with the claim can prompt HMRC to launch a probe.
HMRC also opens enquiries randomly on a percentage of all R&D tax credit claims. This is done to test procedures and check the tax relief schemes are working as intended. As alluded to in the last point, a tax enquiry could be more likely if your client works in a field or industry that HMRC is currently interested in.
For help and advice on R&D tax credits contact a member of our expert team today.