- Don’t assume your company doesn’t qualify – even if your accountant has discounted it or perhaps not even mentioned it (in fact that might be all the more reason to check it out!)
- It doesn’t matter whether your company is profitable / tax paying in a financial period or loss-making – R&D tax relief can benefit you and release cash into your business in both cases
- Think about R&D tax relief and how it might apply to your company as early as possible. This way you can ensure that you are capturing relevant supporting information, documents and costs as you go along – rather than trying to cast your mind back and rebuild retrospectively which might lead to sub-optimal claims
- Don’t discount R&D tax relief if you carried out eligible activities a couple of years back thinking you’ve missed out – you can make a retrospective claim for accounting periods ending in the past two years. So at the time of writing this post (20 June 2016), say you have a 30 June financial year end then the periods ended 30 June 2014 and 30 June 2015 are still open and eligible for R&D tax credit claims.
- Don’t wrestle with the definition of what activities qualify for R&D tax relief on your own – many companies wrongly count themselves out when a quick chat with a R&D tax specialist might have helped them understand how they do qualify. Many company owners are stunned at the breadth of the R&D tax relief.
- Don’t think you have to leave your current accountant to access specialist R&D tax advice – most R&D specialists will supplement the good work your accountant is already doing for you with their specialist R&D tax services so this needn’t upset your ongoing accountancy support relationship.
- Think about how the UK R&D tax incentive can fit into your overall funding profile – so tax advantaged funding such as SEIS / EIS can typically be used in harmony with the R&D tax incentive. Watch out for grants as these can impact adversely on the levels of tax relief available under the R&D tax incentive. Cash tax breaks such as the Patent Box can be used alongside the R&D tax relief. As you can see, thinking about how this can all fit together sooner rather than later will help optimise available funding.
The R&D tax relief is aimed at entities that are registered for UK corporation tax, so primarily UK companies.
The relief itself is administered through the company corporation tax filing regime.
What are some of the key benefits?
- Cash paid to companies that are pre-revenue and / or loss-making to reward them for undertaking R&D work – even if no tax has been paid by the company as yet!
- Reduction in corporation tax payable or refund in cash for those companies that are profitable
- Average claims for SMEs of c£50,000+
- Can be claimed year on year
- Administered by dedicated specialist HMRC R&D Units across the country
- Typical HMRC review process of 28 days from submission
- HMRC Advance Assurance process for first time claimants
- Can go back two years retrospectively to claim for earlier projects
- No matched funding
- No equity to give away
Despite these benefits, it is surprising how many companies continue to overlook this government tax incentive and potentially miss out.
With this in mind, we have recently set up a new course on the UK R&D tax relief that might prove to be a useful primer for founders or entrepreneurs who would like to learn more about this attractive UK tax incentive and how you might benefit.
You can subscribe below:
The UK Research and Development (R&D) Tax Relief Scheme is delivered via HMRC’s corporation tax filing system.
After each financial accounting period, a company is required to prepare statutory accounts along with a corporation tax computation.
The corporation tax computation calculates the tax liability of the company for the period (if profitable) based on the statutory accounts. If pre-revenue and / or in development mode then the corporation tax computation will calculate the company’s losses for the period.
The R&D tax claim figure is entered into the corporation tax computation and CT600 corporation tax return to claim the notional enhanced R&D tax deduction.
The corporation tax return and supporting computation is filed online with HMRC. It is recommended that the company also prepares a report outlining the nature of the R&D work and why / how it satisfies the HMRC definition of qualifying R&D plus detailed supporting claim calculations – or you could get an R&D tax specialist to help :)
If profitable, this will result in a reduction in the corporation tax payable.
If loss-making, the company can elect to surrender the enhanced tax loss for a tax credit payment from HMRC. Or it could elect to carry the enhanced tax loss back twelve months (if profitable) or carry forward to utilise in future periods.
HMRC aims for a 28 day turnaround time in reviewing and processing R&D tax claims.
If you would like to learn more, why not subscribe for our R&D Tax Relief Training Course:
It has been a busy week at ip tax solutions with three R&D tax credit claims securing a total of over £400,000 of R&D tax credits landing in just one week!
The successful companies are all technology companies building new software platforms based from Manchester to London. The claims were agreed within 28 days without query by HM Revenue & Customs. This continues ip tax solutions’ 100% success record.
One of the claims (worth £126,000) was the result of a chance 10 minute discussion with the CEO – he had wrongly assumed that the company’s activities and structure meant that it would not qualify for SME R&D tax relief. I helped explain how the relief could apply based on their facts. With just one week to go until the deadline for making the claim elapsed, we pulled together a robust technical report and calculations and filed the claim with HMRC on time.
The company was thrilled to receive over £100k cash in less than a month!
The other two tech companies each received £175,000 and £107,000 respectively wired directly to their bank accounts within 30 days (#happyclients).
Don’t risk missing out on your R&D tax credit claim – a 10-15 minute conversation might be all it takes to help assess your eligibility for a claim and with average claims of over £100,000 for this week’s successful claimants it would be a shame to miss out…!
The UK R&D tax credit incentive scheme continues to get better and better (have I said this before!?!)
From 1 April 2015, SMEs attract an uplift on their qualifying R&D expenditure of 230% (up from 225%). This means that in cash terms the tax credit is now worth 33.35%!
So 1/3rd of your expenditure on staff carrying out R&D project work could effectively be subsidised by this generous UK tax incentive – that’s up from c25% just over a year ago.
If you’ve yet to take a look at this incentive – especially if you are a developer, digital agency, creative or engineer or manufacturer – I urge you to do so. You can always get some help from some friendly folk who are R&D tax specialists :)
Here is a short summary of the key changes related to the UK R&D tax credit incentive as announced in the March 2015 Budget statement.
- An increase in tbe SME rate of super-deduction from 225% to 230% from 1 April 2015
- An increase in the Large company scheme “above the line” credit from 10% to 11% from 1 April 2015
- Introduction of an advance assurance process from Autumn 2015 for those smaller companies making their first R&D tax claim and seeking some certainty as to eligibility
- Speedier processing, increased publicity and more…
I’ve been getting some questions about the new 14.5% R&D tax credit rate announced in the March 2014 Budget Statement and how it works in practise.
So here’s a short video outlining how the effective rate of cash receivable from HMRC increases from 24.75% to 33% on qualifying spend – that’s one third of your R&D expenditure effectively being funded by the Government!
Plus how it could result in approx £8,000 of additional cash in your bank account for each £100,000 of qualifying spend if your SME is loss-making during its R&D phase.
Please leave your comments or feedback below or get in touch.
Picture the scenario: a new technology startup. The founders invested £250,000 into the development of some new technology. The company is burning through the cash at a rate of knots and so they’re looking forward to recouping a chunk of it by claiming R&D tax credits under the ‘R&D tax credit scheme’ – something they’d heard about somewhere not long ago… In their minds, the tax credit had already been ear-marked for the next phase of work.
But two HUGE (yet surprisingly common) issues were about to put a hole through the R&D tax claim:
- Most of the costs were subcontracted to third party developers. This is fine in principle but under the R&D tax incentive rules such costs are restricted to 65% of the costs incurred (where the subcontractor is unconnected). The logic here is to eliminate the ‘profit’ element made by the subcontractor on the R&D work to get closer to an employee scenario. So here, in one swoop, almost half of the qualifying R&D costs and therefore claim had gone…!
- The company’s accounting period ended on 31 March 2012 and, for periods ending before or on this date, any R&D tax credit is capped by the PAYE / NIC suffered by the company in the period. This company had no employees (they’d subcontracted out all of the work) and had paid themselves no salary so there was £nil PAYE liability and therefore £nil repayable R&D tax credit. If the accounting period had ended just one day later, the company would have fallen within revised rules whereby the PAYE / NIC cap falls away. Ouch.
Of course, we should not lose sight of the fundamental issue of whether the company’s activities qualify for R&D tax purposes in the first place? If so, the company could still get a good result overall (a significant enhanced loss carried forward in the 31 March 2012 period end to offset against future trading profits and a potential repayable tax credit on qualifying activities and costs incurred in its next period ended 31 March 2013 and onwards) – just not perhaps as good as the founders had understood from the outset.
Fortunately, given the relaxation in the rules for accounting periods ending after 31 March 2012, the PAYE cap is no longer a problem – although it can still bite for retrospective claims (which can be made until 31 March 2014).
This is often a problem with tax incentives – there are almost always traps for the unwary…
Statistics from HM Revenue & Customs suggest that less than 0.25% of UK companies are taking advantage of this fantastic Government incentive which can apply to all companies across all sectors.
The R&D tax credit scheme has been in existence since 2000 and the tax relief available has got better and better year on year.
It is important that you investigate the potential for your company to make a claim – you could seek some professional specialist R&D advice here.