Whether you are a new business or an established one, research and development can be key to the business developing. Working on solving problems and developing new products can make the difference between success and failure for a business. And also now the business can claim money from the government towards the cost of this work – in the form of R&D tax credit HMRC issue. But what is the system and does it really work?
Changing face of R&D
Back in the early 2000’s, research and development in the UK was at something of a low. The amount of research being done was steadily declining and the government decided that something needed to be done. R&D has a big impact on GDP and the UK’s was some 30% less than countries such as France, USA and Germany. There was also an innovative gap mirroring a productivity gap that means the country was spending less on research than others and had been since the 1980’s. So what could they do?
They opted for a R&D tax incentive that would reward companies of all sizes that embarked on qualifying research and development by refunding them the money paid out on the research and also a percentage on top of this. And it worked – the figure for 2009 versus the predicted figure before the new credit was brought in 2008 clearly showed an increase in the amount of research and development conducted. In fact, there was around 50% more research conducted and an increase in innovation of around 60% due to the new policy.
Getting R&D tax credits
The success of the policy has continued and is clearly why the government not only kept it in place but increased the amount of funding it puts aside for it – almost doubling the amount. This means an increasing number of companies can receive R&D tax credits to help with the costs of the work they are doing and allowing them to start a project that might be put on the back burner without this extra help.
So how do you know if your business can qualify for the scheme and how much could it be worth to you if you do? Let’s take a look at the meat of the R&D Tax Relief system.
Step one – Small and Medium or Large?
The first step in seeing if your company qualifies under the Small and Medium Enterprise or the Large Company area of the tax relief. The cut-off point is either 500 staff or a turnover of less than €100 million or gross assets of less than €86 million. Once you know if you are an SME or a large company under this definition, you can get an idea how much the tax relief could be worth for your company.
For SME’s, the amount of tax relief you can reclaim is up to 33% of the qualifying R&D spend. You don’t even have to have made a profit to claim the relief – you can either receive it as a credit towards the following year’s tax bill or even surrender it for cash at a rate of 14.5% of the qualifying R&D costs. For large companies, the amount claimable is up to 9.7% of the qualifying R&D spend.
Step two – what qualifies as R&D?
The next step is understanding if the work your company does qualifies as research and development because not everything does. For example, the work must either create new products, services or processes or change or modifying an existing product, service or process. The research doesn’t need to be a success to qualify for the credit but it can’t be in anything other than science and technology – it excludes areas such as social sciences, economics and arts.
The project needs to be more than just commercially innovative – it needs to be a genuine advance to existing knowledge. This might mean clearing up something we are currently unsure about or adding to the knowledge on the topic that will eventually lead to clearing up the uncertainty. It also needs to have a firm method to it that means it is a clear research and development project. This in turn leads to what you can claim for under the tax relief system.
Step three – what you can claim for?
Once you know how much you can claim and that your work qualifies under the scheme you then need to know exactly what costs can be claimed for under the scheme.
Perhaps the big one is the cost of employees’ wages for those people involved directly with the project – so if three people are working full time on the R&D, then you can claim for their wages.
The materials used in the research are the other big thing that can be claimed for under the tax relief. These are physical materials that are used in the work rather than abstracts such as data costs or telecoms bills. However, there is an allowance for utilities used for the project and software purchased specifically for the work.
There’s no doubt that R&D tax credits really work for a large number of businesses but an even larger number don’t make a claim because they don’t realise that they can or that it is worth it for them. That’s why Easy R&D now offer a service that can help you go through these steps to see if the work being done qualifies for the credit and, if it does, how you can claim back that tax relief. It takes the guesswork out of the process and ensures that you quickly get the credits due to your business.
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