R & D tax credits
Many business owners are either unaware of the potential benefits of R&D tax credits, mistakenly think they are difficult to qualify for, underestimate the potential benefits or simply don’t think the scheme will apply to their business.
What Are R&D Tax Credits
R&D tax credits enable companies that incur costs in developing new products, processes or services to receive a cash payment or tax deduction. The R&D tax credit scheme is a HMRC incentive designed to encourage innovation and increased spending on R&D activities by companies operating in the UK. The Government has expressed its desire to make the UK the most attractive place to start and invest in innovative companies and as a result the incentives for companies to innovate have continued to improve.
R&D tax credits were first introduced in 2000, although only available to SMEs initially, so this is not a new form of tax relief. However, in recent years the rates have increased significantly to further incentivise companies to claim.
What is the criteria for eligibility?
The two key criteria in determining whether an innovative company is eligible for R&D tax credits are ‘advancement’ and ‘uncertainty’. Your company can only claim for R&D tax relief if an R&D project seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty – and not simply an advance in its own state of knowledge or capability. The project must relate to your company’s trade – either an existing one, or one that you intend to start up based on the results of the R&D.
What expenditure is allowable?
If your company and the project both meet the necessary criteria, then it is possible to claim relief on revenue expenditure, and in some cases also capitalised revenue expenditure, across three main areas; staff costs (gross salary, employers NIC, pension contributions etc), subcontractors/freelancers and consumable items (i.e. software costs for the project, the heat, light & power, materials and equipment ‘used’ and/or ‘transformed’ by R&D process).
Are you eligible for R&D tax credits?
Many business owners and finance departments will wonder ‘are we eligible for R&D tax credits?’ The answer is often yes. If your company is taking a risk by innovating, improving or developing a process, product or service, then it can qualify for R&D tax credits. It’s rare to find a business where all of the R&D activity is transparent, neatly housed within easily identifiable job roles and functions. We tend to find it’s more typical that R&D functions will be spread across numerous aspects of the organisation, with some individuals playing a far more active role. We often start by working with clients to identify the specific job roles within a business, and attributing a percentage of their time as qualifying R&D expenditure.
Factors That Can Affect Your R&D Tax Credit Claim
Your R&D tax credit claim can be affected if any of its R&D expenditure has to be ‘enhanced’ under a Large Company R&D tax credit scheme rather than the SME scheme. The following factors are the most common ways that an SME’s R&D tax credit claim can be impacted. Our R&D specialists are here to advise you on the best ways to deal with these factors within your business so as to make your claim as effective as possible and reduce the risk of an HMRC enquiry.
Grants or Subsidies
If an SME has received a grant or subsidy relating to the R&D project then all or part of that qualifying R&D expenditure may fall into a Large Company scheme, even if the organisation is an SME for all other purposes. The specifics in the R&D tax calculation will depend on the nature of the particular grant or subsidy. Our specialist advisors will help you or your accountants to understand these exact rules and what will be best for your particular circumstances.
If you are carrying out R&D as a subcontractor to a large company, then you can make a tax credit claim, but it will fall under the Large Company scheme. Sometimes the definition of what counts as subcontracted work is very fine. This can lead to wasted time, rejected claims and missed opportunities. Our experience means we can quickly determine the status of your working relationship as classified by HMRC and make sure that you have submitted the correct type of claim.
Linked or Partner Enterprises
You may not realise that your SME will be counted as a ‘large company’ for the purposes of R&D tax credit calculation if it is a ‘linked’ or ‘partnered’ enterprise . An example of this would be where 25% or more of the share capital or voting rights of the SME are held by another legal entity. When considering the definition of an SME it is important to look at the aggregated amount for each of the qualifying criteria (i.e. employees, turnover and gross assets) on either an absolute basis (for linked enterprises) or on a proportioned basis (for partner enterprises). The rules governing linked and partnered enterprises are complex and the position for an SME is not always obvious initially. We have the expertise to make sure that all your calculations are done correctly and can talk you through them to make sure that you have a full understanding of what is being submitted and why.
How Are R&D Tax Credit Claims Made?
When you come to us with your big idea, whether on your own or through an advisor, we’ll take a close look at your business to see where your qualifying R&D projects are. Once we’ve got a clear picture of the whole business, we’ll get to work digging out all the costs and processes that qualify for R&D Tax Relief. This is where the real hidden value of your business lies, and we’re the best treasure-hunters in the business.
- We’ll do all the work , so you get the credit.
• We’ll point out all your current and upcoming projects that qualify for relief.
• We’ll check the last two financial years for claims you could still make.
When we’ve crunched the numbers, we’ll put all the information and evidence together for you to form the basis of your claim. From there, we’ll take it to HMRC and fight your corner until you get the credit you deserve!
R&D tax credit claims can be tricky to get your head around, so the first thing to do is get in touch with Tax Concept. We can do this over the phone, or even come to you if you prefer. An average claim is worth £49,000, and we’ve never had a claim rejected, so phone or email to make the most of the R&D Tax Credits scheme.