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R&D tax relief: back to basics – ‘who’

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Part one: your ‘who’ questions answered

There are plenty of myths and an air of mystery surrounding R&D tax relief. 

It’s estimated that around 80% of eligible businesses are underclaiming on tax credits they’re due from the government — or aren’t claiming at all. 

At Easy R&D, we’ll ensure you’re not one of them and that you get maximum return.

The three main reasons we hear for not claiming R&D tax relief are:

  1. They’ve never heard of R&D tax relief
  2. If they have, they think it’s just for scientists or specific narrow sectors
  3. They don’t believe the work they’re doing counts as R&D 

You could also be missing out on thousands of pounds. The government will even reward you in tax credits for R&D failed projects

In a bid to make R&D tax relief more transparent, banish the myths, and put money back into your business, we’re going to take things back to basics with the five Ws:

  • who
  • what
  • when
  • where
  • why

In our first instalment, naturally, we answer a familiar ‘who’ question on R&D tax relief:

Who can claim R&D tax relief?

Contrary to popular belief, you don’t need to be scientists donning white coats and goggles — huddled around Bunsen burners in laboratories. The notion that the white coat wearers are the only ones who do R&D, or do more R&D than anyone else, is a common myth that we’re eager to banish.

The latest HMRC data shows top three sectors to claim are: 

  • IT and software, 23%
  • manufacturing, 23%
  • professional, scientific and technical, 19%

These industries claimed 65% of all R&D tax relief claims for 2018/19. Yet, you may be surprised to learn that some big claims are going on in real estate, finance, insurance, education, arts, entertainment and recreation.

Up and coming niche industries include vegan food, drones, and baby tech; think Fitbits for babies.

Some of the biggest industries for the 2020s might not even exist yet. This decade promises to be a fascinating time ahead in the world of technology and business.

From building boats to powering concerts, a business in absolutely any industry can claim, providing it’s:

  • a small or medium-sized enterprise (SME), which the HMRC defines as a company with fewer than 500 staff and a turnover of less than €100 million, or gross assets of less than €86 million

R&D is the development of new products, processes, software or services — or making changes to existing ones. The HMRC’s criteria for claiming is purposefully broad and could be a little as making children’s stickers stickier.

If you don’t believe you’re eligible, then you could be wrong. If you do think that you’re eligible, then you’re probably right.

But don’t just take our word for it. Get in touch, and we’ll find out for sure.

 

Read what our clients have to say about us

Failed R&D is still R&D

image of head with words inside

After 1,000 unsuccessful attempts at perfecting the electric light bulb, a reporter asked Thomas Edison: 

“How does it feel to fail 1,000 times?” 

Edison was quick to retort: 

“I have not failed 10,000 times. I have not failed once. I have succeeded in proving that those 10,000 ways will not work. When I have eliminated the ways that will not work, I will find the way that will work”.

Had research and development tax credits been around in 1878, Edison would’ve been in for a windfall. The British government introduced the scheme — more commonly known as ‘R&D’ — some 122 years later. 

Glass half full

Designed to encourage scientific and technological advancement in companies across the UK, the government rewards you with tax credits for failed R&D projects — even if it’s 1,000+ of them. Or, if you want to view life like Thomas Edison: succeeding in finding ways that don’t work.

You may be thinking that your company needs inventors with Edison’s brain or scientists in white lab coats running around to be eligible for R&D tax credits. That’s a common myth that everyone here at Easy R&D is eager to banish. 

The government’s criteria for claiming is purposefully broad, and a lot can fall under the scientific and technological umbrella. Absolutely any industry can claim.

The government’s incentive

R&D tax credits can help lessen the financial hit of taking risks and investing in innovation. Failed R&D is still R&D, or as the government puts it:

“Even if the advance in science or technology sought by a project is not achieved or not fully realised, R&D still takes place”.

Whichever industry they fall into, our clients often try something brave, bold, unusual or downright tricky — yet don’t always nail it the first time around. We help our clients recoup the money they spend on those unsuccessful projects.

Whether it’s making improvements to existing products, processes, software or services — or developing entirely new ones — R&D tax credits were also devised to incentivise certain behaviours and thinking.

Brian Poole and The Tremeloes? Never heard of her

Yet how we perceive failure is a funny old thing. Thousands of publishers rejected J.K. Rowling because her Harry Potter adventures were “too long for children”.

Dick Rowe of Decca Records declined The Beatles because “guitar groups are on their way out”. He sent John, Paul, George and then-drummer Pete Best packing and signed Brian Poole and the Tremeloes instead. Who?

Another talent spotter, Jim Denny, told Elvis to “go back to driving a truck”. The Kansas City Star fired Walt Disney because he “lacked imagination and had no good ideas”.

Oprah Winfrey was deemed “unfit for television”, over 1,000 restaurants rejected Colonel Saunders’ chicken recipe, and record producer Quincy Jones turned down Marilyn Monroe because her breasts “looked like pears”.

Thomas Edison’s teachers said he was “too stupid to learn anything”, and he was fired from his first two jobs for being “non-productive.” James Dyson went 4,127 failed prototypes more than Edison when trying to create the perfect vacuum cleaner. 

What is it that allowed these people to keep going in the face of adversity? Their refusal to take ‘no’ for an answer from anyone. They were all eventually awarded for “failure”, and with Easy R&D, you could be too.

Where do you go from here?

Our team works in partnership with the leaders of SME businesses, guiding them through the five easy steps to a successful R&D tax credit claim:

  1. We’ll chat about your projects
  2. You upload the necessary information to our secure portal
  3. We analyse the data on your behalf
  4. We submit your R&D tax credit claim with HMRC
  5. HMRC reviews your claim and will notify either you or us if a repayment is due

We take care of most of the claim process, keeping client commitment to a minimum and maximising the claim value that can be received

With a single-minded focus on R&D tax relief and a diverse team of technical experts, we work hard for clients so they can put more back into their company.

Get in touch with our team and find out how you can claim R&D tax relief for your business.

 

Read what our clients have to say about us

The top 5 sectors claiming R&D tax credits

hand holding lightbulb

R&D tax relief is open to any limited company within the UK — in any sector. However, some sectors are at the forefront of making claims for R&D tax credits and can often be rewarded with transformational sums for their business.

So, which industries have performed the best? We take a look at the top five, based on HMRC’s statistics for the R&D tax credit scheme covering 2018-9.

1. Manufacturing

The manufacturing sector is number one at submitting claims. It includes companies making a wide range of products, including industrial equipment, electrical goods, vehicles, chemicals, plastics, clothing, and foodstuffs.

The high number of claims is understandable. Manufacturing is one of the largest sectors to contribute to the UK’s GDP. Manufacturing businesses work to come up with new products and are always seeking to improve existing products. Designs will have to be made, prototypes created, and intensive testing carried out before a product can go to market. Manufacturing processes are also constantly under review to make them more efficient and cost-effective. Also, qualifying R&D can occur in work carried out to ensure products are industry compliant.

Number of claims: 14,000
Amount claimed:  £1,440m

2. Information and communication

Runner-up is the sector with IT at its core. Companies can include those involved in software development, software publishing, telecom companies, video and sound production, fund management, and insurance.

Software development is a particularly fertile area for generating R&D tax relief claims. The technical challenges needing to be satisfied to develop new software can be considerable. The integration of the software with existing operating systems can also present uncertainties that can only be overcome by extensive R&D.

Number of claims: 12,500
Amount claimed:  £1,100m

3. Professional, scientific, and technical

This sector is almost as wide-ranging as manufacturing. Businesses within it include those encompassing engineering, architecture, biotechnology, security systems, advertising and media, and consultancies in, for example, tax.

Qualifying R&D is most likely to be found in the first three industries in this list. Any company with a scientific element to their activity is expected to be engaged in qualifying experimentation and testing. Engineers, including consulting engineers, will often have to carry out extensive R&D to overcome the technical uncertainties of a project even if their customer has already begun the design process. Many architects must try out unfamiliar materials and find solutions to a unique set of requirements on a project-by-project basis. The cost of this R&D cannot always be passed on to their clients.

Although the number of claims is smaller than those made by the Information and Communication sector, it makes sense that those claims’ value is higher.

Number of claims: 11,300
Amount claimed:  £1,290m

4. Wholesale and retail trade and repairs

This sector includes wholesalers and retailers of a wide range of goods and agencies in the sale of agricultural equipment, industrial equipment, chemicals, household goods, food and the like. Those engaged in vehicle and machine repairs are also included.

Qualifying R&D is harder to find in this sector, as shown by the claims figures below. The increase in online sales may have helped some businesses in this sector that have found innovative ways to process sales and handle customers’ financial information. R&D involved in the streamlining or automation of their business operations may also be eligible. Other qualifying examples might be tweaks made to software to improve activity efficiencies, such as stock-taking and delivery schedules.

Number of claims: 6,900
Amount claimed:  £310m

5. Admin and support services

At number five in our list the admin and support sector, including call centres, tour operators, HR and recruitment, and rental firms for vehicles and machinery. As in the above industry, qualifying R&D can be found in software changes to help them run their businesses more effectively. Increasing use of the cloud has also had a positive effect, with solutions sought to overcome challenges that impact factors such as performance or integration.

Number of claims: 3,400
Amount claimed:  £210m

It is evident that the top three sectors — Manufacturing, Information and Communication, and Professional, Scientific and Technical — account for the vast majority of all claims for R&D tax credits. Together, they are responsible for 66% of claims and 71% of the total amount claimed for 2018-9.

Construction comes a close sixth with approximately 3,300 claims, but a slightly higher amount claimed. Other sectors have a much lower claim rate. For example, fewer than 1,000 businesses included under agriculture, forestry and fishing claimed R&D tax relief in 2018-19. And yet agriculture alone is known to use extensive R&D in soil science, feed and pesticides, so this is one sector that deserves further attention.

Whichever sector you operate in, recognising the qualifying R&D in your business can be a challenge. Speaking to an R&D expert can be a big help in ensuring that no work eligible for R&D tax credits is missed and that the claims process is made as timely and hassle-free as possible.

Where do you go from here?

Our team works in partnership with the leaders of SME businesses, guiding them through the five easy steps to a successful R&D tax credit claim:

  1. We’ll chat about your projects
  2. You upload the necessary information to our secure portal
  3. We analyse the data on your behalf
  4. We submit your R&D tax credit claim with HMRC
  5. HMRC reviews your claim and will notify either you or us if a repayment is due

We take care of most of the claim process, keeping client commitment to a minimum and maximising the claim value that can be received

With a single-minded focus on R&D tax relief and a diverse team of technical experts, we work hard for clients so they can put more back into their company.

Get in touch with our team and find out how you can claim R&D tax relief for your SME.

 

Read what our clients have to say about us