R&D Tax Credits – What are they?
R&D Tax Credits were first conceived in the early 2000’s as a means of providing fiscal stimulus to help UK companies make investment in new and innovative technology to aid the generation of jobs.
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After a slow start government statistics now show a significant upturn in the number of businesses claiming what is possibly the most valuable tax relief and certainly the most generous of tax reliefs in the UK tax system.
The concept of R&D relief is actually very straightforward, especially for SMEs and recently ‘simplified’ in the form of the “Above the Line Credit” for “Large” companies. The issue is that companies often find it very confusing trying to ascertain how and why they might qualify for the relief and that is where we can add value.
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HMRC Statistics confirm that over 48,000 successful R&D claims, worth over £4.3bn were made by UK companies for Research & Development Tax Credits in 2016/17.*
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* Source: Latest HMRC Research and Development Tax Credits Statistics Report October 2019.
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So, is your business missing out on this valuable tax incentive?
Even if you are unsure, please get in touch. We can help you figure out if and how your business could receive this valuable financial assistance for developing new products, processes or services.
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Getting it right every time?
The UK professional services market is now dominated by many businesses offering R&D advice. We frequently are told by our clients they have received calls to tell them they qualify for R&D relief and offering to beat the fees they already pay. We do not aim to be the cheapest, but instead offer a mid-market rate for our work. Our aim (for a fair price) is to provide a high service level and report which is of the highest standard compared to other R&D reports we see.
Often where we lose out on clients, we find it is due to lower fees, occasionally we then hear that their experiences means they feel they have made a big mistake. Or they have also been caught out by long (5 year) contract tie in periods - So before rushing to appoint speak to a few businesses and - Be aware!
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All our work is conducted with a close eye on the rules for Professional Conduct in Relation to Taxation ("PCRT"). Essentially this is guidance from our Regulators which sets out the principles and standards that all members of the PCRT bodies must follow in relation to their tax work. From the 1 June 2020, specific guidance has also been issued in relation to R&D because of a perception of abuse in the area.
PCRT R&D guidance which informs the approach to all our
R&D work can be found by clicking on the CIOT Owl:
We also have taken on clients who we have to correct things for and re-file. They find out they have chosen the wrong adviser based on their low fee offering and end up back with us to help them fix things. One of our new clients came to us recently in exactly this predicament with a horrendous claim. The adviser not only got all their R&D enhancement calculations wrong, they forgot to add back the un-enhanced costs, so, they claimed the gross allowance and ending up based on their calculations over claiming. Fortunately, our own work led to a revised successful claim in which we identified more in the way of qualifying R&D and the client ended up with a claim a little higher than the wrong over claim. If we had not carried out this work the client would have on enquiry had a very big surprise tax bill to pay!
It is really important to know what you will get and who will actually work with you to help you identify all your R&D. The old adage of "Pay cheap - Pay twice" comes to mind.
We also always recommend you never use an adviser working at arm’s length. If you want to achieve the right outcome they must meet with you in person. If they do not price the job to meet with you then you are never likely to get the best result. A cheap adviser working from a desktop on the other side of the country (even outside of the UK - we know of Indian claims businesses) will never do your R&D claim justice.
We always meet with you on-site and meet the key people in your business. For later years more can be done at arm's length but getting the ground work right, understanding your business, and getting the foundation of your claim established is so important if you are to maximise your entitlements.
I always say you should think of appointing an Adviser as if you are 'Getting the Builders In':
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Know what you are getting for the price quoted?
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Be aware that a cheap adviser may only be interested in doing the minimum amount of work necessary to secure their fee. Before disappearing never to be seen again!
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Remember Rome wasn't built in a day - deadlines come around quickly! Don't miss out on a claim because you selected the wrong adviser - a slow adviser could prove very costly!
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Be sure, that if things go wrong, you are not left to foot the HMRC enquiry bill.
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You can trust us when we say we benchmark what we charge against the rest of the market place to always ensure we are competitive. We know we offer a great service for a fair price so get in touch today to find out more. We also cover all costs until your claim is agreed, no matter how long it takes!
Does your Company qualify?
It may be obvious but it is important to note that only companies qualify! If you are considering making an investment to grow an idea then you will need to do the R&D work through a company to make an R&D claim.
We often now find that the mention of 'Research and Development' puts many businesses off, they have been contacted before and often we find they have been mislead. Some also have accountants that offer the service and often clients have been mis-advised or mislead in relation to their circumstances.
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The way HMRC interpret what qualifies for R&D has changed over time...
In our experience as the scheme has become more widely claimed, HMRC have begun themselves to understand their own guidelines such that work completed a number of years ago, which would have not previously have been accepted, is now accepted as qualifying R&D.
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It is no longer the case the phrase R&D means that the claimant has to be a research company, or work in a clearly defined sector expected to complete R&D (hi-tech engineering and pharmaceutical) with a team of dedicated R&D professionals.
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Often innovation in our experience is lead by founders of small companies, they have an idea and invest and grow that idea, based upon their experience of failure or lack of alternative solutions. They improve the way something works for the greater good, which they hope to build a successful business on the back of. In our experience there is often never any certainty about the investment startups make. It is this plunge into the darkness for which R&D is designed to help buffer the cost of.
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If any of this sounds familiar to your journey then you are likely to qualify for R&D tax relief.
Some of the key questions you should consider are:
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Are we producing new or improved products?
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Did the design and development involve some uncertainty for which the answers were not obvious?
What qualifies and how we help?
We have the expertise to quickly understand your business and figure out whether you qualify. If in our opinion you do, we work with you to substantiate the figures, prepare a report and handle the submission and negotiation with HMRC. Generally, the turnaround time from start to cash refund is around 12 weeks.
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The regulations allow for a claim to be submitted for the current tax year, plus two previous tax years. This means that the financial benefit in the first instance, can be significant. Claims can be made at any stage of the Financial Year but if another Company year end is rapidly approaching we can put in a 'holding claim' to protect your ability to claim your maximum entitlement.
The R&D tax credit can either be used to offset a tax bill, or taken as cash depending on whether your business is currently profitable or not. Where it reduces a tax liability you previously has paid this will generate a Corporation Tax refund.
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We can also work with you to figure out how best to optimise your remuneration packages to maximise the tax reliefs to which you are entitled.
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You Company is actually likely to be incurring all types of costs which will qualify either entirely or in part for R&D relief. Often most of these costs will be in your Profit & Loss, but we will work with you to ensure we identify all of these costs and why they are relevant costs to claim R&D relief on.
There are also some more complex occasions where it may be possible to claim R&D relief (not the Capital Allowance kind of relief) on Balance Sheet expenditure. Often we find these costs are most often overlooked and for some clients have resulted in enormous under claims of their R&D relief.
ELIGIBLE R&D COSTS EXPENDITURE INCLUDES:
STAFF COSTS
PROTOTYPING
CONSUMABLES
SUBCONTRACTORS
SOFTWARE
RESEARCH
TRIALS
TRAVEL
To find out more please get in touch below and if you have another year end approaching do not delay.
Here are some statistics for R&D claims:
200
£25m
companies claim R&D relief worth
in excess of
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Since our inception in 2012 we have helped in excess of
20
£1.5m
companies claim R&D relief worth in excess of
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In the last twelve months alone we have helped over
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For 2017/2018 HM Revenue & Customs received a total of
48,635 R&D claims,