Category

News

How Can Companies Apply for R&D Tax Credits?

One of the aims of the government in recent years has been to make the UK a place of innovation and development.  To help inspire companies to do this or to help with costs of such research, they introduced a system of business tax credits.  Many companies don’t claim this credit because they think it doesn’t apply to them – but they may be wrong and apply for this R&D tax relief is a relatively simple process once you know you qualify.

Tax credits explained

The research and development (R&D) tax credits are a way that the government helps businesses that are involved in developing new technology or working on new scientific breakthroughs using the tax system.  For businesses that make use of the system, research shows that around 80% of them found themselves in a better financial position for having done the work – able to hire new staff, continue with research and even enter into new business areas.

Small and Medium Enterprises

For businesses with less than 500 staff and a turnover of either less than €100 million or €86 million gross income, the SME’s tax credit applies.  In this, a business can claim back up to 33% spent on research and development, regardless whether the business is making a profit or not.

In 2017, businesses that did make a claim through the system saw an average return of around £60,000.

What qualifies under the scheme?

The reason that many businesses don’t claim under the scheme is that they are unsure if the work that they are doing could qualify under the scheme.  This leads to uncertainty and the decision that time spent trying to claim could be better spent elsewhere.  However, there is a surprisingly large amount of research that can fall under the R&D tax relief system.

The basic qualification is that the work is taking a risk to ‘resolve scientific or technological uncertainties’.  This means that if the business is creating new products, process or services, then it may be eligible.  It could also be the case if the business is changing or modifying an existing process, product or service.  And the most important fact is that the research doesn’t have to be a success to make a claim – failed projects contribute to knowledge and are also eligible.

Examples that have already been accepted by HMRC and the tax credits given to the business include:

  • Translation software
  • iPad and iPhone applications
  • Bespoke time recording systems that incorporated billing
  • New web-based customer relationship management systems (CRM)
  • Dedicated software apps for sub-contractors

The project needs to have a clear start and end date and must involve a process over a period of time rather than a spur of the moment discovery.

What can businesses claim for?

If a business thinks that the work it is doing might qualify, then how exactly does it work out what it can claim for?  Again, there is clear guidance as to what can and cannot be claimed for under the scheme.

You can claim for the costs of staff working on the project, based around the time they spend on it.  These can be gross of salaries, national insurance contributions and pension contributions but the person must have the right background for the project.  There are some situations where businesses can claim for subcontracted work but it is limited to 65% of costs and there are other rules apply.

Software that is specifically for the project can be included in the claim along with items and materials used or consumed during the research.  This includes things such as heat, light and power but only used in connection with the project, not for the larger business.

Getting help to make a claim

A further step to ensure businesses claim what they are due is the development of services such as those offered by Easy R&D.  This enables businesses to go through a process to discover if they qualify for the tax credits and if so, quickly and easily submit the documentation.  Many businesses using the service get the money due to them within six weeks and this can greatly help the continued success of the company.

The system will involve asking a number of questions about the nature of the research such as:

  • Is it in a field of science or technology?
  • Is the work improving what is currently available?
  • Is it a scientific or technological advancement?
  • Is it working on a current uncertainty?
  • Are you investigating and testing results?

Once it has been ascertained that the work will qualify under the system, the information can be gathered to support the costs involved.  This can then be submitted through the relevant part of the T&D tax credits system to get the business the money that it is due or the credit against the following year’s tax if this is the case.

Conclusion

Research and development is crucial to expand our knowledge of all things and the government’s system rewards those involved in it.  Finding out if your business’s work qualifies is now easier than ever and there’s no reason why every qualifying business cannot get the money that the government has set aside for the, allowing them to continue the work into the future and also make a profit.

Easy R&D have helped hundreds of companies to make R&D tax relief claims. Contact your nearest R&D Consultant to see if you can claim – 0800 195 7516 

An Introduction to R&D Tax Relief for Startups

As a start-up business, one of the big concerns is cash flow.  You need to research and develop products but you also need to live and have money coming into the business.  The good news is that here in the UK, we have a system called HMRC R&D tax credit that can help start-up businesses offset this risk

What is R&D tax relief?

Research & development tax relief was created back in 2000 as part of a series of measures to encourage small and medium businesses (often called SMEs) to invest in research and development.  The aim was to boost the economy and also to increase innovation in the UK.  There was a general recognition that the more UK companies pushing forward in developing new technologies, the better it is for the overall economy.

The scheme has been altered over the years but currently, the research & develop tax relief could be worth up to 33% of the qualifying R&D costs.  That means the risk of developing something new is greatly reduced and allows SMEs to branch out into new areas or develop new technologies with a financial support network in place.

What is R&D?

So, what is classified as research & development that would allow a business to make this claim?  The definition says that R&D is:

  • Creative work, away from the normal routine work of the business that is aiming for a novel element or outcome
  • Systematic work to achieve a goal, rather than the one off or lucky discovery so a novel or unique product doesn’t count because it isn’t systematic
  • Any work that enhances knowledge – so the research must be scientific or technological and result in some advancement and isn’t copying or reverse engineering of an existing product
  • Not in the areas of humanities or social sciences

Further to this, it is said that the work must not ‘merely duplicate’ what others have done but must be a ‘significant or perceptible’ advance on previous work.  The activity must also meet the definitions set out by the Department for Business, Innovation and Skills.

While the research doesn’t need to be life-altering, it does need to be an advance on what is already known, even if this is by a small increment.  The company may also work on a project that is similar to another one but may be more cost effective.  Or there may be no public information about the product that means the business’s work is classed as development.  Big name companies such as Google and Apple hold many such projects but never release details so while a company may be working on something the same, it will count as R&D as there is no public record of this project.

Even if the project fails, the business can still register for this tax credit as failure is often a part of developing something new – it just means that you need to work on it from a different angle or try something new.

What can you claim?

Once the work being done qualifies as research and development, then the business can claim for HMRC R&D tax credit.  This is a type of business tax credits that are governed by these stipulations and can be claimed on any revenue expenditure in the outlined area including the day to day running costs of the business but not any capital expenditure on assets.

Employee costs

Employees who are working on R&D and have a contract of employment directly with the company can fall under the research & development tax relief system.  They must not be consultants, agency workers or anyone employed by another company but may be staff providers or subcontractors under some situations.

Materials

Any consumable or transformable material used in R&D can come under the tax credit.  These are the physical materials used to create the development rather than things like telecommunications or data costs.

Other areas

Utilities used to conduct the research can come under the tax relief system including power, water and fuel costs.  Also, any payments made to subjects of clinical trials to test the research can be included as well as software used directly in the research.

How to claim

The business must claim for any HMRC R&D tax credit when it files its Corporation Tax returns or amended returns.  The timescale normally for this is within two years of the end of the relevant accounting period.

To claim, there is a box to select on the relevant Corporate Tax return form, either box 99 or 100 depending on the size of the company.  Expenditure is then detailed in box 101.  This is the amount spent multiplied by either 130% or 230% depending on which is applicable.  This figure needs also to be included in the enhanced figure for profit calculations or loss, either box 3 or box 122.

Additionally, for SMEs there is the option to convert some or all of this tax relief into business tax credits.  To do this, put the amount payable into box 87, 89 and 143 as well as marking to have ‘repayment due for this return period’ on the first page of the form.

HMRC also asks that businesses tell them why the projects are considered applicable under the R&D system and a summary of costs incurred on the project as well as details of how these costs were worked out.

Conclusion

The system of business tax credits for those working on research and development has seen a rash of new innovations since it was created.  It allows businesses to try things that otherwise they may fear doing due to the financial implications and has already resulted in some amazing developments to our knowledge in science in technology.

Easy R&D have helped hundreds of companies to make R&D tax relief claims. Contact your nearest R&D Consultant to see if you can claim – 0800 195 7516