Research and development (R&D) tax credits are a tax relief paid by HMRC to UK companies to reward their efforts towards innovation. Companies that spend money on Research & Development are eligible to claim a Corporation Tax reduction of up to £2.30 for every £1 they spend. We’ve worked with a significant number of businesses to ensure they maximise their claims, and continue to publicise the opportunity to clients. Given that HMRC’s statistics show the average claim to be £61,514 (2015/16), reviewing your eligibility can be a worthwhile exercise!
Who is eligible?
Any UK company, even if loss making.
There are different types of Research & Development tax credits depending on the size of the business, but those that we work with tend to fall into the SME sector, defined as follows:
- less than 500 staff
- turnover of under €100m or a balance sheet total under €86m.
What qualifies as ‘Research & Development’?
The strict definition is activity to ‘resolve scientific or technological uncertainties’ which is extremely vague, and would suggest that you need to be in one of these industries to qualify, but the reality is different!
It is well worth considering a Research & Development claim if you are:
- Creating new products, processes or services
- Changing or modifying existing products, processes or services to improve them.
This is particularly relevant if your work required research, testing and analysis. Remember too that not all Research & Development projects need to be successful for their costs to qualify for a claim!
The primary consideration is that your project must be specifically to make an advance over existing options. Any claim needs to explain how a project:
- looked for an advance in science and technology
- had to overcome uncertainty
- tried to overcome this uncertainty
- couldn’t be easily worked out by a professional in the field.
What costs can I claim against?
There are a range of costs that are eligible, and the calculation has to be done carefully to ensure any claim is robust, but the headline areas are as follows:
- Staff costs (Salaries, Employers National Insurance contributions, Employers pension contributions, some reimbursed expenses)
- A proportion of Sub-Contracted Costs
- Consumables (Fuel, Water, Materials)
- Some software costs
It is worth mentioning that costs can only be included up to the completion of the development of the new product or service. Marketing and other costs beyond the completion of the development are not allowable.
How can we help?
We have a clear process that has proved extremely successful historically with HMRC. It’s not just about the current claim either, as we aim to help you build a streamlined internal process to maximise future claims.
- Building on our existing knowledge of your business, we ensure you qualify and maximise any claim by discussing the more obvious projects within the business.
- We speak to your Research & Development team to ensure that we capture as much activity as possible in our claim, making sure that all activities are included, rather than just the more obvious ones.
- We help you set up or refine your internal record keeping processes to maximise future opportunities. It is very helpful to future claims to have reliable, realistic and contemporaneous records. These help to substantiate the claim and reduce the likelihood of questions from HMRC.
- We collate our findings, prepare a report and revised Corporation Tax Return for HMRC for the period (or for the last 2 preceding accounting periods) and obtain your approval.
- Once approved, we submit the full claim to HMRC, and deal with any questions or queries they may raise.
- HMRC will process the claim, and, assuming it is accepted, either pay funds directly to your Bank account or reduce any Corporation Tax liability. The processing usually takes between four and six weeks, but we’ll keep this under review for you and keep you posted as to progress.
I’ve heard that HMRC may enquire into Research & Development claims?
Yes, HMRC can raise questions about claims, as they can be for significant sums, but any we raise for clients are covered by the Fee Protection Scheme into which we enrol all clients at no extra cost. Given that our time costs for doing so are covered, and we have all the detail on the claim having prepared it, we can take care of any enquiry without any undue stress for the business owner.
According to HMRC’s statistics in 2017:
- There was a 20% increase in total relief claimed over the previous year.
- There was a 20% increase in companies claiming R&D datas in 2017 over 2016.
- HMRC estimates that for every £1 spent on Research & Development tax credits a resulting £1.53 to £2.35 is spent on further Research & Development.
- The primary industries currently claiming for Research & Development are: Manufacturing, Information & Communication, Professional and Scientific and Technical sectors.
If you’d like to know more about our Research & Development process, how simple record keeping can help support your claim or any other aspect of the above, do get in touch. We’re here to help!
Read our related Blog posts:
Fee Protection is now included as standard! – Every year HMRC subject a growing number of submissions from small businesses to intense scrutiny, often without cause and without recovering more tax. This can be a huge cost to the business, both in fees for defending their position, but also in terms of time and worry.