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Five signs your business could be eligible for R&D tax credits

man working with tools and laptop

HMRC has lengthy conditions around what does and doesn’t qualify for the government’s research and development (R&D) tax credits scheme. The work that qualifies — often embedded in day to day work — continually surprises Easy R&D’s clients. Here are five tell-tale indications that you could be due money from HMRC.

1. You’re a small to medium business in any industry

Contrary to popular belief, R&D isn’t reserved for businesses in science and tech. Absolutely any industry can claim, but you will need to be a limited company subject to corporation tax. 

It might be that your company’s main activity and departments differ. For example, a veterinary practice might not be considered a retail company but has a department that develops retail products to sell to pet owners.

2. You’ve improved what already exists

You may be fixing or enhancing an element of a product, process, service, technique, formula, or software item. R&D often starts with identifying a problem, and it doesn’t need to be a world first or rocket science either. Even slight improvements can generate R&D tax credits. 

What you’re developing doesn’t need to be for your clients’ use, i.e. selling in the open market. It could be used to improve the way your company operates, i.e. an internal process or system.

3. You’ve created something new

Imagine that a company has developed a new type of software that the market hasn’t seen before. This would be a strong indicator that they’re eligible to claim R&D tax credits.

Now let’s say that the same company has developed software that already exists on the market but had to experiment with different methods and algorithms to achieve the project’s goals. This still creates eligibility.

4. Uncertainty existed, which you tried to overcome or successfully overcame

HMRC specifies that eligible R&D occurs when “a project seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty”. By crafting a compelling R&D narrative for your business, we’ll show HMRC how your R&D projects benefitted your industry as a whole and not just your company. 

The good news is that ‘tried’ can still be the operative word and key to a successful R&D claim. HMRC will even pay out on failed projects. It’s our job to present to them how the intention was there.

5. The R&D project couldn’t be easily worked out by a professional in the field

We’ll also need to explain to HMRC how a project couldn’t be easily worked out by, as HMRC puts it, a “competent professional”.

A competent professional is someone in your business who has a successful track record, notable experience and skills, or qualifications in your field of work. For software projects, this may be a developer. In a manufacturing business, it might be an engineer. 

Get in touch with us today to find out how R&D tax credits could have the power to transform your business.

How Easy R&D creates a compelling technical narrative

lady at desk writing a report

While HMRC provides guidelines for putting a research and development (R&D) tax credits claim together, it doesn’t provide a standard format or template to work from. When companies attempt to claim themselves, they can end up doing it haphazardly and unsuccessfully.

A solid technical narrative starts by collecting the right data

We’ve found a process that works. Averaging £54,000 per claim, our robust methods have enabled a 100% success rate, meaning every claim we’ve submitted to the HMRC has been paid.

R&D tax credits made Easy

When presenting your R&D work to HMRC in a technical report, we like to make things Easy. An HMRC tax inspector (or more than one if it’s a large claim) will review your claim and ultimately decide if you’re due R&D tax credits.

They’re looking for certain things but also red flags, e.g. mentioning search engine optimisation (SEO) is a big no-no and is likely to prompt HMRC enquiries. HMRC doesn’t consider SEO an advance in science or technology, but more “marketing”. 

Our mission is to make the decision to sign off your R&D tax credits claim an Easy one for the inspector(s) to make.

Requirements for a technical report

HMRC has complex legal definitions of what R&D is for tax purposes, and a technical report needs to tick those boxes and demonstrate how you:

  • looked for an advance in science or technology
  • had to overcome a scientific or technological uncertainty
  • tried to overcome this uncertainty
  • uncertainty wasn’t readily deducible by a professional in the field
  • sought an advance in expertise within your industry as a whole and not just your company

We bring those green flags out as simply as possible and ensure the inspector(s) aren’t left with lingering doubts that make them want to challenge a claim. 

A robust technical narrative is an essential component of a successful claim

Creating a compelling R&D narrative involves our skilled technical report writers striking a balance between:

  1. making your R&D activities simple for the inspector(s) to understand (it’s unlikely that they’ll be knowledgeable in your field of work)
  2. not dumbing things down so much that your R&D doesn’t sound impressive

Usually, the trickier a project was, the more likely it is that R&D took place.

A flawed technical narrative is likely to attract lengthy and costly HMRC enquiries

HMRC investigations typically take six months to a year to resolve. Not only can this delay your funding by several months, but it could also reduce your windfall, damage your relationship with HMRC, and embroil your staff in prolonged back and forths with tax inspectors. And time is money. If there’s an opportunity for a cash injection, you’ll no doubt want it as soon as possible. 

Any industry can claim R&D tax credits, and HMRC could even reward you for unsuccessful projects. You can take the first step to R&D tax credits by getting in touch with us here.

How furlough can affect your R&D tax credits claims

During the coronavirus pandemic, you may have placed some of your employees on temporary leave (furlough) and made use of the Coronavirus Job Retention Scheme (CJRS). This can have an impact on your R&D tax credits claim. 

In short: you cannot include staffing costs paid while employees were on furlough in your R&D tax credits claim. The expenditure can’t be incorporated because, under CJRS, furloughed staff members cannot do any work for you. HMRC doesn’t consider them as being actively engaged in R&D activities during this time.

“The rule is causing some businesses to unintentionally exchange a potential 24.7% tax relief for an almost immediate cash flow advantage”, explained Easy R&D’s Tax Partner, Yolande Van Niekerk.

“This might’ve been the only option for some businesses with little or no buffer to get through the pandemic, yet those that could pay salaries without claiming CJRS may have lost out”. 

“Many would not have been aware of the impact on their R&D tax credits claim. This highlights the importance of having a professional advisor who can advise you on the potential impact of decisions before they take effect”.

The excluded costs will include their gross salary for their furlough period, plus National Insurance Contributions (NIC) and pension contributions — even if they weren’t fully covered by government funding.

From 1 July 2020, it was possible to flexibly-furlough an employee, which allowed businesses to bring back employees part-time. In these cases, employees still couldn’t carry out any work regarding their employment during a CJRS claim period. 

The relationship between staffing costs, furlough, and R&D tax credits can be complex — particularly when flexible-furlough, holiday and sick pay come into play. 

We’re here to take all the complexities that go into claiming R&D tax credits off you so that you can get maximum return on your tax credits and back to winning business. 

For more advice on furlough and your R&D tax credits claim, you can get in touch here.