Here’s an audio summary of 10 key benefits of the UK R&D tax credits government tax incentive from our R&D Tax Credits podcast.
r&d tax credits
Hi, my name’s Steve Livingston, and welcome to this podcast on R&D Tax Credits. Something a bit different in terms of how we can really share the information and help more companies access this very generous UK government tax relief.
First and foremost to introduce myself, my name is Steve Livingston, I’m the founder of a tax advisory firm called IP Tax Solutions. I’m a chartered accountant, and I’ve been advising companies for fast approaching 15 to 20 years, so fairly experienced in this area, and especially how we do tax reliefs. I have been a qualified Chartered Accountant since 2000.
So, I’ve worked with a lot of companies across a diverse range of sectors, and I think that’s one important thing to note from outset here, this research and development tax relief applies to pretty much any company in any sector. And so you may well find that you’re a founder or a director of a company, and you may have heard of this relief, but you may not be quite sure how it could apply to you.
This podcast aims to run through a series of questions about how it really works in practice; how it may apply to you and really answer frequently asked questions. That’s the format we’re going to take here so you can maybe pick and choose which ones you want to listen to. You can listen to them all if you like. Fill your boots! But you don’t have to do that at all, it’s really a case of giving you an awareness, and I should say in terms of legal blurb this isn’t professional advice, this really is just a case of education, and hopefully some entertainment on the way, as you can learn more about how this tax relief could benefit you.
So, without further ado let’s jump into the episodes. We’re going to try and cover a question in each podcast episode. We’ll aim to be quite short and snappy, so that you don’t have to get too bogged down in detail. But if you’ve got any questions you can of course shoot them over to me. You can find me at iptaxsolutions.co.uk. I also have a site at businessn2K.com. Or you can find me over an email, which you’ll find via those websites.
Again, let’s dive in. As I say, my name’s Steve Livingston. The people who are going to benefit from this podcast are really founders, directors of primarily SME companies, or they may be in charge of a large company, but hopefully find these of use. That’s all for now, speak to you soon.
- 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.
Here’s a round up of some recent financial & tax news that might be of interest – you can find an audio download version of this post below:
Calls for quarterly R&D tax relief for SMEs
In an effort to boost SME cashflow, there are calls for the Government to make the UK R&D tax incentive a quarterly rather than end of year tax relief. Currently SME companies claim R&D tax relief retrospectively. Large companies can, however, reduce (in year) quarterly instalment tax payments that they are required to make thereby securing the benefit of the relief earlier. This measure would help level the playing field. This makes sense – we’ll have to wait and see…
March Budget 2016 – Pension countdown
George ‘O’ will step up on 16 March 2016 to deliver his Budget Statement and the big news is expected to be regarding restrictions on income tax relief on pensions for higher rate tax-payers.
Action point: Consider making pension contributions in advance of the Budget date.
Patent Box changes afoot – act now
New, more stringent rules will apply to companies that elect into the Patent Box tax incentive after 30 June 2016. This follows the ‘beating’ this UK Gov tax incentive received from other EU states following its introduction in 2013 (but for how much longer in the light of a possible Brexit….?).
Action point: If you have a patent or patent pending, consider electing in before 30 June 2016.
Get ready for new dividend tax rates
From 6 April 2016, new dividend tax rates will apply that results in an almost complete shake-up of the fairly established remuneration structures for most owner-managed companies.
Action points: Run some calculations to see how you might be affected and consider paying further dividends in advance of the 5 April 2016 deadline. Note that companies that qualify for R&D tax relief might have some of the down-side offset by receiving a greater proportion of the remuneration in the form of PAYE salary / bonus and claiming enhanced R&D tax relief (dividends are not eligible).
Buy-to-let changes – traps for the unwary
I probably don’t need to tell you more about the widely publicised restrictions being placed on buy-to-let interest relief etc but watch out for the Stamp Duty Land Tax (SDLT) 3% surcharge that can bite in what might otherwise be fairly innocuous circumstances…
For example, buy a new residential house before selling old residential house = 3% ouch! You might be able to receive a refund in these circumstances but the initial additional SDLT outlay can be significant and is yet another case of a tax sledge-hammer to crack a nut!
SEIS / EIS Course Launch
By popular demand, we have set up a new course setting out in the ins-and-outs of the hugely popular (yet often misunderstood!) Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS).
These UK Government tax incentives are growing in popularity – especially with the growth of crowd-funding platforms such as Crowdcube. We have helped and continue to help 100’s of companies navigate and make the most of these tax reliefs which can be quite tricky to navigate for the uninitiated.
If you are a company founder or considering diversifying into business angel investing yourself, you should benefit from this course.
You can sign up to receive the course via email here:
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…!
As we run up to the 7 May 2015 election, thoughts turn to what the result might mean for UK startup and fast growth companies?
Techcrunch has noted the partisan approach that UK tech companies seem to be taking in writing a letter in support of the Conservative Party and points out that this stance should be taken with a pinch of salt (although I understand the article was penned by a declared Labour supporter ;) ).
I don’t want this to fall into a political rant but I sense there is a lack of transparency in the Labour party’s stance on how it might build on the successes that we have already seen in terms of tax policy for UK tech and fast growth companies.
For example, the Conservatives have made great strides in the following areas:
- The introduction of Seed Enterprise Investment Scheme (SEIS) and its generous tax incentives to support investment into early stage companies to supplement the Enterprise Investment Scheme (EIS) aimed at more established companies
- The improvements made to the Enterprise Management Incentive (EMI) share option scheme to allow participants to benefit from Entrepreneur’s Relief despite potentially not holding the shares for 12 months nor even holding more than 5% of the share capital
- Improvements to the R&D tax credit incentive scheme that now boasts a 33.3% return for claimant SME companies
- Introduction of the Patent Box at its beneficial 10% corporation tax rate – despite challenges from across the EU
- Enhancements to Entrepreneur’s Relief that now allows entrepreneurs to benefit from a 10% CGT rate on the first £10m of lifetime gains
- Reduction in the main corporation tax rate down to 20%
- Plus video games tax relief and other reliefs for creative and digital companies
Taken together these measures keep the UK on track to meet George Osborne’s pledge to make it the most attractive place to do business in the G20.
It is worth noting that many of the above tax incentives were first introduced during Labour’s last bout in office; albeit in a more watered down form in most cases – although who’s to say that Labour might not have followed a similar path had they stayed in the office…? Truth is, we don’t know.
And herein lies the problem…
Labour do not appear to have shared much detail on their thinking and policies around these areas and, in particular, these specific tax incentives. The danger is that an incoming party wants to “shake things up” and “make their mark” which may threaten the stability and progress made around these important areas for UK entrepreneurs.
We may just be about to find out more…
Description: In this 45 minute webinar, Steve Livingston, founder of innovation tax specialists – ip tax solutions, walks entrepreneurs / founders of UK technology and digital companies through 5 vital tax planning opportunities that are often overlooked – potentially losing out on £100,000’s of cash tax savings!
These 5 essential tax tips are based on UK Government tax incentives that have been enacted to help and support tech and digital companies just like yours…
This free webinar aims to provide participants with an awareness to be able to move forward in exploring these cash saving (and potentially raising) opportunities within your business.
You should ideally be the founder, CEO, CFO of a UK based technology, digital or creative company to get the most out of it.
Date & Time: Thu, May 7th, 2015 at 1:00 pm BST
Please register for the above meeting by visiting this link: http://iptaxsolutions.enterthemeeting.com/m/FQZFF9B3
Once you have registered, we will send you the information you need to join the webinar.
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…