Research and Development (R&D) Tax Credits are part of the government’s drive to boost investment in British innovation. Essentially, it is Corporation Tax relief. Currently, only 10% of eligible businesses are claiming; which leaves 90% of businesses missing out on approximately 25p for every £1 spent on R&D projects.
- Your effort is rewarded.
The success of your R&D Tax Credit claim is not reliant upon a successful project. You can still claim even if your project fails.
- It’s not just for science and technology projects.
HMRC’s definition says that a project is innovative if it “…seeks to achieve an advance in science or technology through the resolution of a scientific or technological uncertainty…”.
This means that you have identified a problem, couldn’t easily find the answer somewhere else and so worked out your own answer. It includes improving efficiencies in processes, production or services. Your company doesn’t have to have a dedicated R&D department to be ‘doing’ R&D activities.
- ‘Qualifying Costs’ aren’t just materials used
The costs that qualify for inclusion on an R&D Tax Credit claim are not limited to physical materials. They also include, but are not limited to: utilities, staff, software, clinical trials and subcontractors. As with other tax reliefs, you submit costs that are proportional to the amount of time spent on the actual R&D projects.
- You don’t have to be in profit
You can successfully claim R&D Tax Credits even if your company is currently making a loss.
- There is some leeway on deadlines
HMRC allow companies to backdate R&D tax credit claims for two years from the end of the accounting period in which the R&D activities occurred.
Is my business eligible for R&D Tax Credits?
The eligibility criteria are simple and apply to every business across every industry sector. It is the detail of your projects that are important, not what field you work in.
To be eligible for R&D Tax Credits you need to be a UK registered limited company that is paying Corporation Tax. You must be an independent company (not a sub-contractor or section of a larger company), a going concern and submit GAAP accounts.
There are two schemes: R&D Tax Credits for SMEs and RDEC (Research and Development Expenditure Credit Scheme) for large companies.
They have nothing to do with other Tax Credits or Child Tax Credits.
If it’s so great, why isn’t everyone claiming R&D Tax Credits?
This is a very important question that the government are currently grappling with.
These are the most common answers:
- I’ve never heard of the R&D Tax Credits scheme or the RDEC scheme.
- I had a quick look at the regulations and it just looks too complicated. Even my accountant’s not keen to embark on making a claim.
- I don’t think it’d be worth enough money to justify the time and effort I’d need to put into it.
- My business isn’t in the science or technology sector, so I’ve just assumed what we’re doing wouldn’t be considered ‘R&D’.
- We’ve done some innovative projects, but I don’t really know what costs we can claim for.
The government need to invest in a solid publicity campaign for R&D Tax Credits. You can’t access tax relief if you don’t know it exists and far too many businesses simply don’t know about R&D tax relief.
The regulations are complex and even some accountants are hesitant to start an application. Unfortunately, many businesses are totally put off by this and right off R&D Tax Credits as ‘not for them’. You do need to have a deeper understanding of the schemes before you can see how they apply to your business. It’s a case of looking at your business through the lens of R&D Tax Credit regulations.
There are specialists in R&D Tax Credits who already have the expert knowledge to help you maximise your claim. They search for all applicable projects and their qualifying costs.
This article is provided by industry experts DSMR&DTaxCredits.co.uk as part of their commitment to sharing their knowledge and increasing the uptake of this superb tax relief. Just to help you decide if it’s financially worth the time and effort – their average claim is worth £49,000. Imagine what future innovations you could fund with that.
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