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:
Here are the slides that I used to present to the Chartered Institute of Patent Attorneys (CIPA) at a seminar in Liverpool last week. The key relevant theme was the Patent Box (given the audience) but my objective was to emphasise how and where the Patent Box fits into the wider series of Government tax incentives aimed at innovative IP-rich UK companies.
From start-up we have the Seed EIS followed by EIS for tax efficient funding. Both schemes are designed to support companies undertaking R&D work and creating their own IP.
R&D tax credits then step into support companies during the development phase. The R&D tax credit relief continues to be a fantastic source of support for UK companies but up until 1 April 2013 there was a cliff-edge at the exploitation stage as there were no tax incentives there to support IP rich companies.
This where the Patent Box steps in to support companies with qualifying patents to complete the innovation business lifecycle.
I am getting a lot of questions at the moment about the process for raising funding under Seed EIS and where the advance assurance fits in?
The Advance Assurance is a mechanism that allows companies to pre-qualify themselves with HM Revenue & Customs (HMRC) as a qualifying company for the purposes of raising funding under SEIS. It is not obligatory – although it is good practice. Most sophisticated investors will insist that the company has received advance assurance from HMRC of its qualifying status before investing as do many of the crowd-funding sites.
The other factor to take into account in deciding whether or not to seek advance assurance is that when you get to the stage of filing your SEIS compliance statement with HMRC (in order to secure the tax certification for the investors to allow them to claim their SEIS tax relief), if you haven’t already filed an advance assurance, the likelihood is that you will have to answer a series of questions from HMRC regarding the company’s qualifying status much like you would have completed at the time of the advance assurance – so you may as well have gone for it in any case and got yourself on HMRC’s radar as well as gaining comfort for the investors from the outset!
The process for seeking advance assurance is to use HMRC’s own SEIS advance assurance application form. If your facts are particularly complex or you would like assurance in relation to certain aspects then I tend to supplement the form with a letter to ensure that I have disclosed all of the relevant facts – so there is no come-back further down the line…
If you would like any assistance in relation to the Seed EIS advance assurance process then you can drop me a line here or at my specialist advisory firm, ip tax solutions.
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.
A short 5 min overview of the Seed EIS tax incentive and need to know facts and tips for startup founders.
Remember, SEIS requires a subscription for shares – loans do not work.
Look forward to your feedback and experience of using the scheme in the comments section below.
Seed Enterprise Investment Scheme (SEIS) is great when its structured right…
Problem is the rules are fraught with technicalities and I am increasingly coming across entrepreneurs and startup founders who are ploughing on thinking they qualify for this attractive tax relief on their own investment into their new venture when, in fact – they don’t :(
It is all to easy to jeopardise Seed EIS relief before you’ve even really started – unless you deal with this sort of stuff day-in-day-out.
I thought I would share my thoughts and my experience in this short video above.
Mark knew that his new business would be at the cutting-edge of technology and potentially even a world-player – exactly the sort of business that the UK Government is keen to promote and support in the form of tax incentives.
Fully aware of the opportunities that the UK tax code provided for releasing cash into his new venture, Mark kicked off by raising an initial £150,000 under the Seed Enterprise Investment Scheme (SEIS). A 50% income tax break for the investors made it easier to nudge up the cash they were willing to part with; plus the opportunity to sell their shares after three years – capital gains tax ‘free’ – made the investment even sweeter. Mark had pondered utilising this tax break on his own £10,000 investment into the company but decided that, on this occasion he wanted to retain more than 30% of the share capital (which precluded him from SEIS) – maybe next time…
This SEIS cash would be used to fund the R&D phase in employing a small team of developers. Given that the company was pre-revenue, Mark was able to claim a welcome tax refund from HM Revenue & Customs under the SME R&D tax credit scheme. This released in excess of £30,000 into the business which was promptly used to fund a further developer outside the SEIS funds to accelerate the project.
Having made significant inroads on the R&D work (whilst burning through in excess of 70% of the SEIS cash!), Mark approached investors for a further round of funding – this time under the Enterprise Investment Scheme (SEIS’s ‘big brother’!). A 30% income tax break this time for investors (plus potential for a capital gains free exit) provided sufficient enticement for investors to inject a further £2m into the company.
Meanwhile, whilst the R&D work was ongoing, Mark had made investigations regarding the potential for filing one or more patents on aspects of the underlying invention generated by the R&D work. With the arrival of the new Patent Box tax incentive from 1 April 2013, Mark knew that a 10% corporation tax rate by 2017 on worldwide income derived from qualifying patents could add additional value to his company as it approached an exit as well as releasing further much needed cash into the business from now until then.
Eyeing an exit in 3-5 years time, Mark ensured he retained at least 5% of the share capital post dilution at each funding round in order to secure a capital gains tax rate of just 10% on his first £10m of gains. His SEIS and EIS investors should be extra happy with a 0% capital gains tax rate after three years!
All in all, Mark had pulled the relevant statutory tax incentive levers to maximise the release of cash into his business at each stage of its life-cycle. What was this worth? It depends – the SEIS, R&D and EIS savings total approximately £700,000 but assuming a profitable few years under the the Patent Box and taking into account the above savings it is not difficult to reach overall pre-exit cash tax savings of £1m+.
Getting advice from the start can get you on the road to being a tax aware entrepreneur…
In this free webinar, Steve Livingston (Founder & MD of ip tax solutions) walks Founders and Entrepreneurs through the basics of the UK R&D tax credit incentive.
This is a ‘back to basics’ seminar for company founders / entrepreneurs who would like to learn more about the Research & Development tax incentive and whether it might apply to their business.
- What it is and why it was introduced
- An overview of the (generous) tax benefits
- What companies qualify and qualifying costs
- The process for making a claim to HM Revenue & Customs
- Why you should consider this incentive for any business
This free webinar lasts 55mins