{"id":1858,"date":"2025-06-03T10:47:21","date_gmt":"2025-06-03T10:47:21","guid":{"rendered":""},"modified":"2026-07-26T16:23:55","modified_gmt":"2026-07-26T14:23:55","slug":"how-to-avoid-some-of-the-most-common-errors-on-rd-tax-credits-claims","status":"publish","type":"article","link":"https:\/\/leyton.com\/uk\/insights\/articles\/how-to-avoid-some-of-the-most-common-errors-on-rd-tax-credits-claims\/","title":{"rendered":"How to avoid some of the most common errors on R&D Tax Credits claims"},"content":{"rendered":"\t\t
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Anyone can make a mistake, but errors on R&D tax relief claims can become huge headaches for businesses, potentially leading to HMRC investigations with benefits held back as a result.<\/p>\n\n\n\n
To help you avoid making a mistake on your claim, we\u2019ve put together a list of some of the most common errors made in R&D Tax Credits<\/a> claims (as identified by HMRC<\/a>).<\/p>\n\n\n\n R&D has a very specific definition for UK tax purposes. R&D happens when a project aims to make an advance in knowledge or capability in a scientific or technological field. You can find out more by reading our article: What is an R&D project?<\/a><\/p>\n\n\n\n Regardless of what you needed for completing your R&D project, there are set categories of qualifying expenditure for R&D Tax Credits claims. These include:<\/p>\n\n\n\n Direct expenses:<\/p>\n\n\n Indirect expenses:<\/p>\n\n\n What counts as qualifying expenditure for R&D Tax Credits has evolved over time. There are special rules for connected parties. When companies are connected it usually means that they have a relationship of some kind. For example, if one company controls or is controlled by another, or if both companies are controlled by the same person\/persons. Essentially, you need to ensure that any mark-up\/profit margin charged by the connected party is removed from your R&D claim.<\/p>\n\n\n\n When claiming R&D Tax Credits there is a set definition of \u201cSME\u201d, which is that your group staff headcount must be less than 500 people and the group must have a turnover of less than \u20ac100m or have a balance sheet of less than \u20ac86m.<\/p>\n\n\n\n Some companies make the mistake of not realising that, while they might not feel like a large organisation, they are in fact not technically classed as an SME because they are part of a much bigger group.<\/p>\n\n\n\n So, if you have only 50 employees but your parent company has 600, you\u2019ll need to claim R&D tax relief under the RDEC scheme.<\/p>\n\n\n\n In certain circumstances, loss-making SMEs can surrender their losses in exchange for a payable tax credit. While any un-surrendered losses may be carried forward for setting against future years trading profits, the rules are very clear for surrendered losses: they can\u2019t be carried forward.<\/p>\n\n\n\n If you\u2019ve used unconnected externally provided workers (EPWs) or subcontractors, you can\u2019t claim for the full costs, but you can claim 65% of R&D-related wage or contractor payments. You can\u2019t claim for R&D tax relief via the SME scheme<\/a> for subsidised expenditure. If the only reason that you\u2019ve not been able to claim for your expenditure is that it\u2019s subsidised it may be possible to claim via RDEC<\/a> instead.<\/p>\n\n\n\n In terms of government support, if you\u2019ve received notified State Aid funding, then you can\u2019t claim for any expenditure under the SME scheme. If you\u2019ve received a grant or subsidy that isn\u2019t notified State Aid, which might simply mean that it\u2019s been paid for by another person or company, you can\u2019t claim for the subsidised expenditure through the SME scheme, but you might still be able to partially claim for any non-subsidised expenditure, as well as separately claiming for subsidised expenditure via RDEC.<\/p>\n\n\n\n There are certain circumstances where subcontractors can claim for R&D tax relief \u2013 even if they\u2019ve been paid to fulfil a contract. For example, if as a subcontractor you started an R&D project under your own initiative to improve your ability to fulfil the contract then this isn\u2019t considered subsidised expenditure, and you would therefore be able to make a claim. The guidance on this was recently clarified by HMRC after a First-tier Tribunal (FTT) ruling. You can find out more by reading our article: How the changes to subcontracted R&D expenditure guidelines affect SME scheme claims<\/a>.<\/p>\n\n\n\n For claims made for accounting periods beginning on or after 1 April 2024 under either the new merged R&D scheme<\/a> or ERIS (Enhanced R&D Intensive Support)<\/a>, things are much simpler as there are no restrictions on subsidised expenditure for either of these schemes.<\/p>\n\n\n\n If you\u2019re keen to avoid any of the common mistakes listed in this article, we\u2019d be happy to help. We\u2019re also able to support businesses facing compliance checks with a full R&D enquiry defence support service<\/a>.<\/p>\n\n\n\n Get in touch<\/a> to find out more.<\/p>\n\n\n\n If you enjoyed this article, you might also like:<\/p>\n\n\n Anyone can make a mistake, but errors on R&D tax relief claims can become huge headaches for businesses, potentially leading to HMRC investigations with benefits held back as a result. To help you avoid making a mistake on your claim, we\u2019ve put together a list of some of the most common errors made in R&D […]<\/p>\n","protected":false},"author":115,"featured_media":1935,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[138],"tags":[528,532],"expertise":[468],"class_list":["post-1858","article","type-article","status-publish","format-standard","has-post-thumbnail","hentry","category-rd-tax-credits","tag-hmrc-en","tag-rd-en","expertise-rd-tax-credits"],"acf":[],"yoast_head":"\nNon-R&D activities are claimed for<\/h2>\n\n\n\n
So, if the advance only benefits your business and doesn\u2019t add to our broader knowledge in that field \u2013 it doesn\u2019t count. Also, anything that isn\u2019t in the field of science or technology like arts, humanities, social sciences or economics also isn\u2019t eligible.
The best way to know if you\u2019ve made a genuine advance is if you\u2019ve come up against a scientific or technological uncertainty for which there isn\u2019t an existing solution, and a competent professional can\u2019t easily overcome the uncertainty.<\/p>\n\n\n\nNon-qualifying expenditure is claimed for<\/h2>\n\n\n\n
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Claiming for expenditure in the period before it qualified<\/h2>\n\n\n\n
The last big change affected accounting periods beginning on or after 1 April 2023, when data licence and cloud computing costs were added as qualifying expenditure and pure mathematics was included within the definition of R&D for tax purposes.
Unfortunately, you can\u2019t claim for categories of expenditure for periods before they qualify.<\/p>\n\n\n\nSpecial rules for connected parties aren\u2019t applied<\/h2>\n\n\n\n
If your company pays a connected party to do the R&D work for you, you can only claim the lower of either what you paid the connected party, or the relevant expenditure of the connected party (i.e. the actual cost incurred in the connected party\u2019s accounts).<\/p>\n\n\n\nCompanies don\u2019t realise that they\u2019re not SMEs<\/h2>\n\n\n\n
A loss previously surrendered for a payable tax credit is carried forward<\/h2>\n\n\n\n
Claiming for more than 65% of subcontractor costs<\/h2>\n\n\n\n
Bear in mind that there are rules that restrict claims for overseas expenditure that came into effect for accounting periods beginning on or after 1 April 2024. You can find out more by reading our article: Everything you need to know about the new rules for overseas R&D expenditure<\/a>.<\/p>\n\n\n\nSubsidies or government support aren’t taken into account<\/h2>\n\n\n\n
How Leyton can help<\/h2>\n\n\n\n
Our team of expert consultants have in-depth knowledge of HMRC’s strict rules and regulations. They\u2019ll guide you through the criteria for claiming and help you substantiate your claim with clear evidence. They\u2019ll even help to identify eligible activities \u2013 this can be of huge value as most businesses tend to underestimate how much they can claim.<\/p>\n\n\n\n\n