What is R&D Tax Credit?
Research and Development tax credit is a government tax relief which supports innovation in business. This covers creating new products, processes or services. It is the UK's most generous corporation tax relief and yet is massively under claimed. HMRC figures show that only a small percentage of SMEs (small and medium-sized enterprises) are actually claiming this very attractive tax relief and those that do claim are often leaving money on the table, even if they have had some external support.
If your company is running projects aiming to achieve an advance in technology you may well be eligible for R&D tax relief. This can mean a reduction in your tax bill or, in certain cases, provide your business with a cash sum.
You may have looked at this before, however it might just pay to take another look; specialists can often identify a larger scope or claim than may have been identified through usual accounting processes.
Who can claim and how much?
Only Limited companies can claim and there are different types of tax relief or credit available depending on company size.
SME R&D Relief
You may be able to claim SME R&D relief if you have less than 500 staff and a turnover of under
€100m or a balance sheet total under €86m.
For qualifying claims the company will receive an additional 130% corporation tax relief. So for an R&D spend of £100k in an accounting period, an additional £130k tax deduction is allowable, giving a total relief figure of £230k. This will reduce taxable profits or increase tax losses. If the company is loss making they can claim a tax credit, currently up to 14.5% of the surrenderable loss.
Research and Development Expenditure Credit (RDEC) - For large companies
RDEC now replaces relief previously available under the large company scheme.
For qualifying claims the company will receive an additional 30% corporation tax relief. So for an R&D spend of £100k in an accounting period, an additional £30k tax deduction is allowable, giving a total relief figure of £130k. This will reduce taxable profits or increase tax losses. If the company is loss making they can claim a tax credit, currently up to 11% of the surrenderable loss.
What costs can I claim for?
The costs which can form part of a claim are:
- Staff costs
- R&D materials and consumables
- Costs incurred for any subcontracted R&D
- Software licenses
- Heat, lighting and power
Is there a time limit on claims?
Companies can claim R&D relief retrospectively for two years from the end of the accounting period. So a company with a year-end of 31st December could retrospectively claim for the 2016 and 2017 accounting periods. The deadline for a 31st December 2016 claim would therefore be 31st December 2018.
Does my R&D project have to succeed?
Even if your project hasn't been successful or if it is abortive you can still claim for qualifying activity.
How do I know if I qualify?
This is where things get a little more complicated and is often the stumbling block that deters companies from attempting to make a claim. There are three criteria that R&D needs to meet in order to qualify:
Advance in Technology - The company has to be aiming to or achieving a technological improvement to an existing product or process.
Technological Uncertainties - You need to prove that there was significant technical challenge to your development. You will need to demonstrate a period of experimentation, testing or trial and error and explain how you overcome the uncertainties.
Project is not readily deducible - You must be able to show that a competent professional in the field couldn't just work this out. As a general rule qualifying projects last at least 3 months. If projects last a shorter period of time, it is likely that insufficient uncertainty existed at the start of the project.
Where can I get help with all of this?
Clearly there is work involved in ascertaining if a claim is going to be fruitful and given the complexities involved most companies without specialist in house tax advisers would benefit from the support of an expert in the field.
PEPCO work with Abbey Tax, the first, and most experienced, specialist R&D tax provider in the UK. They have a long standing successful relationship with HMRC and are members of the HMRC R&D Consultative Committee. Their team is made up of PhD specialists, tax advisers, surveyors and patent attorneys and they have secured £250m in tax reliefs to date with claims prepared for over 2,000 companies. They have an unrivalled success rate with R&D claims, making over 600 claims per year with less than 1% receiving any kind of interrogation from HMRC.
Abbey Tax support the end to end process from establishing if a claim can be made right through to receipt of benefit. A brief qualification call is usually all that is required to identify if there is a valid claim and fee structures are simple and contingent.
A PEPCO client recently received a multi-million tax credit under this scheme. So if you are undertaking projects that might be eligible - ask yourself - is it worth 15 minutes of your time to take a closer look?
For further information on this or any areas where we can help please contact Mark Russell: 0203 008 7585 or email@example.com
N.B. This article is for information only and should not be considered as taxation advice, businesses are advised to seek professional advice to support any tax claim.