It’s no secret that the business world is changing. New start-ups are popping up every day, and with them come new opportunities. But it can be hard to keep up with all of the changes. One thing you don’t want to miss out on is claiming R&D Tax Credits for your company.
In this blog, Anne Rose, Head of Tax at Burgis & Bullock, takes you through everything you need to know about how to claim R&D Tax Credits in 2021 as a start-up entrepreneur or business owner.
What is R&D tax relief for start-ups?
R&D tax credits are a way for the Government to reward innovative behaviour and companies that are seeking to develop new products, processes and technologies – or make significant improvements to existing technologies.
They are a means of getting valuable cash back into a start-up business at a stage before they are potentially able to sell anything and are still in the innovation/R&D stages of product development.
How to claim your R&D tax credits
It is important to say that only a company can claim R&D tax credits, not a start-up which is is being run as a sole trader or partnership – if that’s the case, the business won’t be entitled to make the claim.
The primary way you can claim R&D tax credits is by submitting a claim through the HMRC portal.
Certainly, the normal way that you claim is at the point in time when you complete your statutory accounts and submit a corporation tax return.
You claim in respect of any accounting period, whenever you set your year-end to.
When completing your set of accounts, you can complete your tax return and file it with the R&D tax return.
A claim can be made at any time up to two years after the end of an accounting period. For example, December 2019 year-end could still make a claim in 2021 as long as it was filed before the end of this calendar year.
Businesses can employ professional support to do this, such as with our tax team at Burgis & Bullock.
But, for smaller businesses, whose claims may be small enough not to require professional support, a new system has been introduced called Advanced Assurance and allows small companies to complete their own claims.
Advanced Assurance is used in addition to making the formal R&D claim in a tax return and can only be done before a first claim has been made.
The company will be asked to fill out forms describing their work and then HMRC will call the business direct to discuss, before writing to advise whether the business would qualify for R&D tax credits.
HMRC will then not ask queries about the first three years of claims a company makes, as long as the R&D activities remain exactly the same – however, HMRC will call every year to check!
It is often difficult for a start-up to know what they will be doing for the next three years in terms of R&D.
The vast majority of businesses will seek professional help and wait until they have done some qualifying activity and know exactly what they have done in an accounting period.
How often can you claim and do you have to invest a certain amount?
You can claim every year. There is no limit as long as you are still doing qualifying activity which meets the HMRC definition.
We work with businesses that claim every year because what they do always involves an element of R&D.
Businesses may claim for 2/3 years, get to where they want, and for a few years reap the benefits of that and move into the production side of things.
There is no minimum amount for making a claim!
Who is eligible and what challenges are there?
There are two schemes, the SME scheme and the Large scheme. The SME scheme is the much more generous of the schemes to encourage people to get businesses off the ground.
You can only claim when you have incurred qualifying costs. When people are starting up, even if it’s just a couple of people in a corporate structure, they may be investing time and effort in work that qualifies.
But if the people working in the business don’t pay themselves a salary then there is nothing to claim on! Unfortunately, if you are not paying yourself there is nothing to claim.
There are qualifying criteria you must hit:
- Must be performing qualified research and development activities
- Qualified research is defined as an activity that has a potential to contribute to society through its knowledge or technology
- This includes any process involving experimentation, exploration, creation or invention where there is no certainty whether any results will be achieved
Whether or not you have a reasonable expectation of success is not relevant! They are trying to reward new ideas, which will be good for the country in the long-run
It’s about seeking to make advances in science or technology. This could be advances in products or processes, businesses trying to develop new product or ways of doing things, or making new use of new materials and new techniques.
What challenges might a business face?
Some people get put off because they either think the process is complicated and they don’t have time, or they think that what they are doing wont qualify. That’s why its important to talk to a professional. The outcome of that conversation should be for your advisor to tease out whether there is likely to be a claim or not
It is very tricky to know whether you will fall on the right side of the border for innovation if you don’t have experience in these claims.
If you are claiming yourself, you will need to be prepared to answer questions from HMRC. This shouldn’t put businesses off provided you have told the truth previously and are confident in your claim.
It can be time consuming if you do it yourself as there are a lot of rules and nuances. But for a start-up, it drills down to two key points:
- Understand if your activity qualifies
- If yes, then you need to know how to pull together appropriate documentation to send to HMRC.
Examples of claims through Burgis & Bullock
At Burgis & Bullock we helped clients save nearly £1 million through R&D tax relief claims in the pandemic alone.
These claims have been vast and varied, but the biggest claims usually come with engineering businesses – which is partly a reflection of our location as a firm in the Warwickshire engineering hotbed.
Engineering companies are always looking to develop new products and find ways to complete work better, quicker and cheaper.
We also see a lot of technology-based claims from firms that are developing specialist technology solutions. We’re moving into the Fourth Industrial Revolution and a huge amount of work is being done by technology firms around automation and improving manufacturing processes.
But we do get more unusual claims from architects, construction firms and many more. These are businesses that are looking to use new materials and perhaps make building more energy efficient.
What are the next steps to claim your R&D tax credits?
The best place to start is an introductory phone call. My team and I are very happy to have a conversation with someone for no fee, I don’t mind if I have 10 in a day.
Don’t worry if you’re not sure, don’t worry if you don’t have time to read all the HMRC guidance. Talk to an expert instead.
We have vast experience of helping to make a judgement call on a claim and can you normally tease it out with a few key questions.
To find out how Burgis & Bullock’s specialist tax team can support with R&D tax relief claims, visit www.burgisbullock.com or call 01926 451 000.