R&D Tax Credits
Are you developing a new process, a product or service, or perhaps improving an existing one? The R&D Tax Credit scheme is an important government incentive which rewards companies of all sizes that work on innovative projects.
The current regime of claiming for enhanced credits against corporation tax is a generous one with up to 225% relief available for qualifying expenditure. In fact, with HMRC tasked with approving these claims there has (rightly) been a rush of claims recently submitted by many different businesses.
HMRC aims to make 95% of its R&D tax credit pay-outs within 28 days and it is very easy to put in a claim and for it to be paid upfront and unchallenged (after all, it’s just a number in the tax return box), and we have seen examples where relatively little additional evidence has been provided to substantiate some claims.
However, if the claim can’t be adequately substantiated or if the legislation has not been correctly understood HMRC could quite easily take the view that putting in a claim like this is negligent, pushing the time limits for them to make an assessment out to 20 years. It is therefore imperative that claims are fully considered and evidenced if businesses aren’t to inadvertently leave themselves with a “sword of Damocles” hanging over them.
The key to accessing these incentives and cash injections is getting the right advice. You need to understand the full range of R&D activities and projects that can qualify for government support. This requires a deep knowledge of the sources of support available and the respective criteria and application processes. It also requires a passion for and knowledge of the science and technology that is driving innovation in your business.
What counts as R&D?
The main part of an application for R&D tax credits is knowing what you can and can’t claim for. In most instances you can claim R&D relief on revenue expenditure, i.e. day-to-day operational costs, but not capital expenditure (money spent on fixed assets such as land and buildings). Some typical areas which you can include in your claim are as follows:
Direct staff costs – employees who have worked directly on the R&D project and include costs such as; gross salaries, overtime, employer NI contributions, employer pension contributions and certain reimbursed business expenses. Independent contractors and subcontractors can be included in a claim but there are some specific rules around what is allowable.
Software – Software which was needed for R&D or involved in R&D activities may be included but must have been developed / purchased for the R&D project.
Consumables – Materials and resources that are used up / consumed in your R&D process, such as water, fuel and power can be included in your claim.
Subcontracted R&D – If a portion of your R&D project has been outsourced to another company for an agreed amount, you can include up to 65% of these costs in your claim under the SME scheme.
However, it must be stressed that R&D Tax Credits are a useful instrument for many businesses and can genuinely encourage research and innovation through the UK taxation system but whilst encouraged by both government and HMRC, as with all tax planning care needs to be taken regarding selection of professional advisers, implementation, and record keeping.
Our team have many years of implementing successful R&D claims on behalf of businesses of all sizes and will be happy to discuss if there is the possibility of an R&D claim with any business owner who has not taken advantage of the relief available.
Whether you’re looking for more information on R&D Tax Credits, looking for a trusted advisor to help you with a claim, or just interested in finding out a little more about us, our friendly team are ready to work with you. Click here and we will be happy to arrange a free, no-obligation meeting.