The R & D claims process is part of the normal treatment of providing the necessary annual accounts information to HMRC, and the qualifying expenditure should be shown as an adjustment to the profit figure on which tax is calculated.
Only the qualifying figure is needed for tax purposes, but you should maintain a record of how that figure has been calculated, and be prepared to show back up documentation such as payroll and invoicing information.
As instructed by the HMRC web site you should also submit an explanation of why the work qualifies as R&D by describing the projects, explaining why they represent advances in science or technology, what the scientific and technological uncertainties were and how and when they were resolved. These explanations should be in layman terms.
- Understand the Guidelines and interpret them in order to see how they apply in your industry and your company. This is open to misunderstanding.
- Identify possible R&D projects, understand the R&D content through identifying the possible areas of scientific and technological advances or capability advances.
- Identify the scientific and technological uncertainties which were encountered in the projects in order to achieve the advances sought. Only work directly associated with resolving those uncertainties is qualifying R&D.
- Create a document which describes those advances and uncertainties and when and how they were resolved. This document should be written in layman’s terms.
- Calculate the expenditure incurred in doing the R&D in terms of direct labour, sub contracted labour and directly related consumable costs. See HMRC web site for details.
- Provide the correct qualifying costs to whoever handles your Corporation Tax returns.
- Answer any questions which HMRC want to ask in relation to technical qualification and costs.