R&D Tax Credits
What are R&D Tax Credits?
You may or may not have heard of this generous government incentive, or be familiar with how it all works, which is not uncommon as many businesses in the UK are still missing out on this rewarding scheme or likely to be under claiming.
Essentially it’s a way in which the UK Government continues to support businesses who have undertaken some form of R&D.
The average R&D claim results in £54,000 of cash back to businesses
which is a valuable source of income to then re-invest in accelerating R&D, hiring new staff and ultimately keep on growing!
Am I doing R&D?
Well you’ll be surprised to hear that actually a lot of businesses think they’re not undertaking R&D and it comes down to a few things and so without over complicating the rules if your business meets the following criteria then it’s very likely it qualifies for R&D Tax Credits (regardless of which industry your business operates in):
- Your business is a limited company subject to UK Corporation Tax; and
- Your business has spent money on staff and/contractors developing new products, processes or services, or improving existing ones
Still not sure?
We're always happy to help businesses navigate through to what can be a complicated set of tax rules so why not contact us for a free no obligation call to discuss your business and how you could potentially make use of this generous scheme.
The detailed UK government definition on what is R&D for tax purposes can be found here
What is R&D for tax purposes?
You’ll be pleased to hear that the UK Government’s definition of R&D is a lot more broad than in the general sense of what some may think as R&D i.e. just new product development. The definition (referred to as the BEIS guidelines for R&D) states that in order for a ‘project’ to qualify as R&D for tax purposes it must achieve these the following two objectives:
- Project needs to seek to achieve a scientific or technological advance; and
- Whilst achieving this scientific or technological advance, needs to be resolving a scientific or technological uncertainty.
Did you know
You don't necessarily have to be doing blue sky research to qualify - actually a lot of R&D takes place where you're appreciably improving existing products or processes i.e. making something bigger, better, stronger, faster etc.
What’s a scientific or technological advance?
In simple terms it's where you have undertaken a project where it leads to increased technical knowledge or capability.
When assessing whether the development work your company has undertaken is a scientific or technological advance, you must assess the advance against the existing level of industry capability - this can include an advance achieved elsewhere provided the solution is not available on the public domain.
Did you know
There are no territorial restrictions for where R&D takes place. You may have used staff or contractors overseas to support your development efforts in the UK and could potentially be able to claim a proportion of those costs associated back.
What’s a scientific or technological uncertainty?
A technological uncertainty may exist where something has been demonstrated as feasible to develop, but it’s unclear whether a commercial version can be produced.
It could even be where the technological approach is unproven, or theoretically it works out but practically you get a different answer which forces you to go back to the drawing board.
Did you know
Bringing together known components or modules may not sound like R&D, but if your company had faced technological uncertainty (e.g. integration issues) for which the solution wasn't readily deducible by a competent professional then this would likely qualify as R&D.
How to make a claim
To make an R&D claim requires careful due diligence; particularly with HMRC giving this area alot more attention as a result of the increase in claims being filed year on year. We understand that businesses generally do not have the time to get up to speed with the nuances of the tax legislation and so we’ve created a simple 4 step approach to ensure we’re maximising your R&D claims whilst balancing out the time and effort required on your side:
- We’ll have an initial call/meeting to get to know you and your business and workout how much could be claimed
- Once you’re happy with the terms and ready to go we’ll issue an information request setting out the data needed in order to prepare a claim
- In the background our team will be going through the financials and technical data shared to start pulling together a claim. We’ll then look to host a technical interview with one of your technical leads to discuss some of the R&D projects in detail
- Once all the number crunching and necessary evidence has been gathered, we'll wrap things up by preparing a deliverable that goes to HMRC supporting the claim being filed - this is to help ensure a smooth submission so that you can receive the cash shortly after, which can subsequently be used to re-invest back into the business
HMRC understands that businesses have a number of priorities and so have permitted a generous time window of 2 years from the end of the company's accounting period to make a claim i.e. Company A has a 31 December 2018 year end and so has until 31 December 2020 to file an R&D claim.
Please note that preparing an R&D claim can take time; particularly where it's the first time and involves a number of different stakeholders and so we strongly recommend companies to start preparing the ground work sooner rather than later to avoid any delays in receiving cash available that could be re-invested back into the business to help support jobs and further development activities.
We have a team of experts who can help devise suitable and robust methodologies to ultimately help your business save time and effort.
That’s what we like to hear! However, you might be interested to know that we’ve helped many clients with revisiting their R&D claims by finding extra value on types of costs and activities that were previously overlooked. So if you have made R&D claims in the recent or past do reach out as we'll be happy to help identify anything that may have been potentially overlooked!
Typically HMRC aim to pay out any SME claimant within 28 days of the claim being filed although in light of the COVID-19 situation, we note that HMRC have been working proactively to ensure repayments are made as soon as possible.
If you're a 'Large Company' for R&D tax purposes, HMRC still look to payout within a similar time frame, but given the complexities larger corporates have with managing a number of tax affairs this could add more time in receiving any repayment due.
We've worked with businesses to get more certainty around repayment dates from HMRC so if you're having any issues, or thinking about what to do next after you've filed your R&D claim do speak to us and we can look to support your business with getting more information.