R&D tax relief has been around in the UK for more than 15 years – it’s an enhanced corporation tax relief and has been successive government’s main way of encouraging limited companies to invest more in innovative development work. The average corporation tax saving to be claimed is circa £50,000 and there’s no de minimis level for claiming.
R&D tax relief is a means by which a company can reduce their Corporation Tax Liability. This highly beneficial relief is only available to companies.
Claiming is relatively straightforward and easy (when you know how) and the companies who are claiming come from various sectors (some you’d never even think of) – the important initial task is to clarify the scope of the R&D that’s been undertaken, confirm eligibility to claim and then pull together the claim in an appropriate and acceptable way (including summarising claimable costs and providing a report that justifies the claim from a technical perspective).
As is often the case when something almost seems ‘too good to be true’, a number of myths and misconceptions have emerged surrounding R&D Tax Credits, which include;
- “Claiming is risky and may lead to broader tax investigations” that’s not the case, particularly if you go about claiming in the right way and, if needs be, use an independent specialist to advise and support you in claiming.
- “HMRC do not want claims to succeed so make it hard to qualify” that’s most definitely not the case; HMRC are helpful and supportive in this regard and the legislation is quite clear.
- “We need to own the IPR in order to claim” that was the case until 9th December 2009 but from that date this condition no longer applies.
- “We are too small to claim” again that’s not the case, as there is no de-minimis level as far as claims are concerned.
- “We are involved in IT (developing websites, games or apps or just programming) so would not qualify” again that’s not likely to be the case, providing you are seeking to make an advance to a product, process or service and are using science and/or technology to do so; lots of companies involved in IT have successfully claimed.
So this begs the question – “Why are many SMEs under-claiming or indeed not claiming at all?”
Usually the critical factor for an SME business is in understanding the scope of what can be claimed, in terms of identifying eligible projects, and then pulling together a ‘Claimable Costs Summary’ and writing an appropriately formatted ‘Technical Justification Report’ to support their claim for R&D Tax Credits. If you excuse the pun, this isn’t ‘rocket science’, but I’m personally very much of the view that it makes great sense to use an independent specialist to help and provide support with these.
The straightforward answer to the obvious question “So who can claim R&D Tax Credits?” is…. ‘Companies who take the risk and use science and/or technology to overcome uncertainty, and develop new or improved products, processes or services’…. including Rocket Scientists, obviously.
So a wide-variety of companies can claim R&D Tax Credits, more than most people initially assume; companies who create a new product or improve an existing product, develop a new service or improve an existing service, or design a new business process, such as to improve organisational efficiency. This could therefore be in developing a new handle or a better lock or a more efficient cleaning process or making better pies or bread or a new computer-based system, so long as science or technology is used in an innovative way.
If you think your business can benefit from this generous tax relief then you should speak with your accountant. At Taxwise we have a specialist that can work with you and your accountant to unlock this saving, please give Taxwise a call (or ask your accountant to give us a call) on 0844 892 2470 and speak to our tax team (option 1) or drop us an e-mail at firstname.lastname@example.org.