By James Carr, R&D Tax Manager at Ayming UK

To fully maximise an R&D claim’s potential, increasing numbers of companies are looking at their claims on a real-time basis.

The core of an R&D claim process is to review which projects undertaken by a company qualify as R&D for tax purposes within a given financial period. A real-time capture approach reviews projects as they are undertaken at regular intervals during an accounting period instead of a retrospective exercise after the year-end date.  

A real-time capture approach is proven to increase the claim value and deliver a smoother and more efficient claim process. It also unlocks additional value from the claim process, such as the ability to track R&D spend in real-time, enables reliable forecasting, and supports the pro-active use of the R&D benefit to influence the strategic direction of live projects.  

In a real-time capture process, assessments are performed on live projects as, or shortly after, work is undertaken. This makes it is far easier for those involved in a project to talk through and access the information required to assess whether it qualifies for a claim. If an individual is actively or recently engaged in carrying out work, it will be easier for them to recall and obtain important technical and financial details for the assessment when compared to a retrospective claim looking back up to three years. This means that the individual is less likely to miss qualifying activities, increasing the potential claim value, and leads to a quicker, more accurate assessment that uses less of their time. 

Real-time capture also guards against the loss of knowledge that can occur when individuals leave a business or when data repositories get shut down or archived at the end of the projects. Another advantage of real-time capture is that if the qualifying R&D found in the assessment process is ongoing, individuals in the business can then capture notes on the going claimable works and know the key metrics to record to substantiate them.

Take, for example, a project that Ayming recently assessed on a real-time basis, related to the use of a new type of concrete, with activities related to testing its properties and performance includable in the claim. Essential information was required to substantiate and ensure that the claim was maximised.  This included details on the areas of the project on which the new concrete was tested, the number of people involved, proportions that were scrapped, testing timescales, notable ongoing technical challenges in its development, and the relevant supplier and worker costings. As the project was live, the individual could easily recall these facts, using their ongoing experience and technical notes. Crucially, they could also confirm with the current site teams on the activities’ duration, which led to a larger claim as the activities took more labour time than the individual thought himself. As the R&D activity was live and ongoing, the real-time process enabled the individual to track the identified qualifying elements and document the information to support the substantiation of the future works in a targeted, efficient manner. 

Adopting a real-time capture process allows strategic use of the R&D benefit to influence and support future works. The benefit can commercially tip the scales in favour of using a new approach on a project or extending testing and technical works to gain additional insight. 

The R&D claim benefit can be factored in to bid pricing and provide a real competitive edge. It allows a business to offer a new or improved innovative solution, requiring more technical resource, for the same price as a business-as-usual one, with the additional resource cost covered by the tax benefit received. Say, for example, an existing, tried-and-tested solution required 900 hours of work and a new innovative approach 1000 hours. If that new approach fully qualified for RDEC, 130 hours cost would be claimable, reducing “true” cost to 870 hours. Effectively, the new approach could be offered to a client for the same price. This mechanism can drive deliver better solutions for clients and develop new knowledge for the business and broader industry, pushing practices forward in the relevant sector.

Real-time capture can generate a forecast of the expected R&D claim benefit for a business for the current accounting period. This is a useful internal indicator of an R&D claim’s expected magnitude and can be used for financial forecasting purposes. The reporting allows pro-active action to be taken to remedy potential issues with a claim process, such as an area with a lower-than-expected forecast due to lack of engagement from an individual or team. 

The real-time capture approach is aligned with the proposed “Making Tax Digital” changes for Corporation Tax. With a similar ethos to the described real-time capture methodology, the Making Tax Digital vision is to have a “fully digital tax system that works closer to real-time.” One of the proposed ways to achieve this is through a requirement for entities to submit quarterly updates. These will have an option to include the indicative effect of anticipated claims to incentives, into which the real-time captured R&D claim can feed directly. 

So, what does a real-time capture process look like? The process must be designed to fit the business it serves, with the nature, range, and size of activities a key determinant. A large company undertaking thousands of projects in a period may be best serviced by a hybrid, sampling-based approach, with projects selected quarterly and information streamlined by an automated data analytics package. For a smaller business or one with fewer projects, it could rely on a high-level monthly screening of work to allow targeted assessments to occur as and when potential works are identified.

The efficient embedment of a real-time process and deployment of effective systems to enable it is crucial. The real-time methodology requires a centralised and standardised system to capture data and progress the claim. Without this, it runs the risk of becoming less time-efficient than a retrospective claim, eroding its additional value.  

Ayming has extensive experience in successfully deploying real-time capture approaches for our clients and developing the right real-time capture process to take your business’s R&D claim further.