Tax credits for research and development (R&D) are a government-sponsored incentive for businesses that invest in new product development and research. The tax credits are available to enterprises and corporations of all sizes and across all industries, and they are a valuable source of funds for expediting research and development projects. They are an excellent method of injecting funds into businesses in order to encourage innovation and assist them in growing. As a result, it should come as no surprise that many businesses want to acquire a slice of the pie. Applying for and securing of being eligible for the tax credits, on the other hand, can be a challenging task to figure out because there are so many different types of claims and procedures to sort through.
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When it comes to claiming the incentive, there are a handful of conventional techniques. One option is to hire the services of a specialist research and development tax credit adviser, while the other is to rely on their existing internal accounting team to file their claim for the credit. Both go through the entire process for the company, from identifying qualified projects to actually filing a claim for reimbursement. Furthermore – because technology is making strides in accounting, just as it is in the vast majority of other business applications – an R&D tax credit software is a new method that is being used to apply for tax credits claims for research and development.
What Is An R&D Tax Credit Software?
This is a special type of software that provides accountants with the tools they need to draft and file research and development tax claims. They are used to supplement the services provided by an accountant; for example, rather than hiring an external specialist to prepare the claims, they can be completed in-house for a speedier completion.
How Does R&D Tax Credit Software Work?
The procedure for submitting R&D tax claims remains unchanged. The software just assists in automating portions of the procedure. Several steps in the process are automated, including the following:
- Screening of projects that are eligible
- Collection of data
- Viewing and editing of reports
- claim procedure is flexible to meet your business needs.
- A comparison of current standardization claims to earlier HMRC tax inspections.
- Calculation of the entire value of the company’s R&D tax credit claim.
Prior to starting the process for the R&D tax credit application, the R&D tax credit software can assist in weeding out ineligible entries and shortening the accounting period necessary to submit a claim.
Because everything is done digitally, the possibility of entering incorrect data is minimized. The questions may be formatted using multiple-choice, drop-down, or slider menus to expedite, simplify, and standardize the data gathering process.
By providing pre-made templates for the needed R&D tax credit claim, the software simplifies the process of creating necessary documents. And furthermore, they will guide the user through the process of completing the CT600 and any other specifications for HMRC compliance.
An R&D tax credit software has an advantage over conventional tax credit application methods since it is significantly faster due to automation. They do, however, have restrictions.
Limitations Of An R&D Tax Credit Software
While utilizing an R&D tax claims software could save you some time and money in terms of administrative charges, it still leaves you with a lot to address.
Data collection and technical writing for the tax claim are among the remaining duties. This requires you to recognize and segregate qualifying projects from the remainder of the company’s projects. Because you will be writing the document, you will need to gather accurate information and arrange it in an understandable manner for HMRC evaluation. This also means that you are responsible for ensuring the claim’s quality and correctness.
This is a time-consuming and difficult step in the process that can easily go awry. By submitting claims on your own, you risk receiving less than what you are entitled to. An even more perilous consequence is that if you fail to notice problems, you risk receiving HMRC inquiries notices and even penalties! The software could only automate portions of the process; whether the claims will qualify remains entirely up to you.
Also Read: The Complete Guide to Tax Planning Season
How the R&D Tax Credit Software Can Save You Precious Time
Here are a few ways that an R&D tax credit software can help you save time.
1. Categorization of expenses
It becomes simpler to specify the kinds of expenses that would qualify for the tax credit when you use the software. If you are trying to ascertain all of the eligible expenditures for R&D tax credits, the following are among some of the expense items to consider — W-2 wages (taxable), supplies and extraordinary utilities used during research, contract research, and also leasing and rental charges for computers and dedicated server, etc.
2. Extensive documentation
One of the key benefits of utilizing R&D tax credit software is that the systems are designed to assure appropriate record-keeping (critical for considerable time savings when going through audits), determine qualifying costs and expenses, and substantiate claims. Additionally, the R&D tax credits software provides for the appropriate preparation and submission of R&D tax forms, employee time monitoring, creation of payroll offset forms, and periodic tracking of the same, and ultimately, it enables easy credit defense in the event of audits.
3. Integrated Services
With R&D tax credit software, you will save time by not having to go through all your books or interact with payroll providers. The software will verify that everything is done correctly.
R&D tax credits include a wide range of advantages that can assist not just your company but also the government and the economy as a whole. In order to gain the benefits of contemporary accounting technology, an R&D tax credit software is an excellent tool to use. It may save your business a significant amount of time and administrative effort.
However, in order to reap the full benefits of employing this software, it is recommended that you collaborate with a qualified R&D tax advisor who can fill in the gaps that the software is not capable of doing.