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R&D Tax Relief

What are the current trends in R&D Tax relief?

What are the current trends in R&D Tax relief?

Over £3billion R&D tax relief was claimed in the 2015-16 tax year alone. The total number of R&D tax relief claims and the amount claimed has continued to rise each year since the scheme was introduced.

We recently posted an article on HMRC’s Research and Development Tax Credits Statistics for 2017.  These covered the 3 years to 31st March 2016 and gave us some interesting reading.

In each of those years, there has been a clear increase in the total number of R&D claims and the actual amount claimed. All positive news of the UK’s R&D future, but we wanted to look at the data more closely to see if it would provide insight into differences by geography and industry.

R&D claims by Industry

The manufacturing and information and communication industries have provided the largest number of claims with over 53% in 2015-16.  However, numerous other industries have over the years been gradually catching up.

Whilst the actual number of claims being made in the manufacturing industry has increased, their proportion of claims decreased by 5% since 2013-14.  That 5% has been filled by all manner of industries, for example, the arts, entertainment and recreation.

This might be an indication of other industries learning how R&D applies to their workplace and being in a better position to take advantage of the scheme.  We are certainly finding that clients come to us with a better understanding of the scheme.  

R&D claims by region

London is still the leading region by the number of claims at 19%, closely followed by the South East at 17%.  However, the value being claimed in these regions has dropped over the past three years.

London’s share of the total claim value being awarded was 31% in 2013-14 but decreased to 28% in 2015-16.  Could this be the “Northern Powerhouse” our previous Chancellor of the Exchequer, George Osborne introduced?

We have many clients in Scotland and here statistics show a surge in R&D.  Although the proportion of claims being made has remained constant over the three years at 5%, their share of the value increased from 3% to 6%.  In cash terms, the actual increase has been from £55million to £165million in benefits received.

Closer to our home in the Midlands, the proportion of claims and value received has remained consistent.  But again, the actual figures show increases. 

Over the three years studied the annual number of claims being submitted in the Midlands increased from 2,730 to 3,760 and the money being claimed has jumped from £220million to £360million each year. 

R&D Trends in the Future

It will be interesting to see if these trends continue into the year ended 31st March 2017 and beyond.

The impact from Brexit has yet to be seen.  However, utilising the tax reliefs available to you like the R&D relief scheme will be more important than ever to increase competitiveness in an ever-changing marketplace.

If you're interested in finding out how much you could claim, check out our free R&D calculator, giving you an instant estimate.

Or book a free consultation at a time to suit you below: 

How long will it take to claim r&D tax relief?

How long will it take to claim r&D tax relief?

RESEARCH AND DEVELOPMENT TAX RELIEF – HOW QUICKLY CAN I GET MY R&D TAX CREDITS?

From an initial meeting with you, claims take on average 8-10 weeks before the benefit is received.  So you understand what goes into this let's take a look at HMRC's processing time. 

HMRC R&D PROCESSING TIME

HMRC advise that the processing of claims can take between 4 to 6 weeks and is usually true for companies claiming tax credits.

There are various means for any claim to be processed by HMRC depending on its type and the final process can be dealt with by different departments.

For example, repayments of corporation tax are eventually processed by a corporation tax team and sometimes take longer. In addition, popular year ends (e.g. March and December) and national holidays can mean a delay in receiving your claim benefit. 

PREPARING THE R&D TAX RELIEF CLAIM YOURSELF

This time can be hugely variable, depending on the familiarity of the people building the claim and their understanding of the legislation. If you are looking at doing it yourself then you’d need a couple of months to fully read through and digest the legislation, then a fair chunk of time to build the technical narrative that the claim rests on. The accounting side takes less time, but of course is critical to get right. 

HOW LONG WOULD WE TAKE TO DO IT FOR YOU?

Companies can claim for the previous two years, meaning if your year end is December you have until 31st December 2017 to claim for the year ending 31st December 2015. This timing drives how urgent your claim submission is.

After our technical meeting, we write the claim and the majority of those are submitted on your behalf within 4 weeks, with very little further input from you. If timing is tight, however, we can deliver quickly for you - we haven’t missed a deadline yet.

Interested in talking to one of our Tax Advisors to find out what your claim could be worth?

Book a free consultation with us:

 

 

Welcoming our Apprentice Natasha

Welcoming our Apprentice Natasha

We wanted to introduce you to our latest member of the team Natasha Vaughan. Natasha has joined us a Tax Assistant Apprentice and will be completing her apprenticeship us.

We started off asking Natasha why she chose an apprenticeship over going to University?

"I chose an apprenticeship over university because I wanted to get work experience as well as a qualification. I feel that at university you don't tend to experience a working environment as much, and I didn't want studying for more exams to be the only thing I was doing since having just finished A-levels. I wanted to get out there and develop skills by actually doing the job instead of learning about it.

Out of this experience, I'm hoping to learn more about taxes and accounting through the job and the college course. I'm looking forward to progressing my career in that area and possibly becoming an accountant in the future if I find that it is something I enjoy. I'm also hoping to better my communication skills with customers and general skills within IT and calculating taxes."

What’s your role at G2?

"Tax Assistant Apprentice. When I've completed my training I will be assisting in reviewing company accounts and preparing information for R&D tax relief claims."

What were you doing before you came to G2?

"I was studying A-levels (Maths, Physics and Chemistry) at South Nottinghamshire Academy."

What training have you had?

"Through my apprenticeship I will be attending a college to study the AAT level 2&3 course to train more for my role."

What podcast, magazine, website or Tv show you hooked on at the moment?

"Friends."                    

If you were a super hero what powers would you choose?

"To be able to fly so then I could go anywhere in the world whenever I wanted."

What do you love about your job?

I find the company very varied and interesting and enjoy learning about clients new ideas and innovations.

We're really pleased to have Natasha on our team and are sure she will have an exciting successful career. 

 

 

5 questions to ask your R&D tax advisor

5 questions to ask your R&D tax advisor

If you are aware of R&D tax relief you may be thinking about how it might apply to your business, and how to go about starting the process.

What questions should you ask when choosing a specialist?

1.     Experience - Do they have experience of claims relevant to your industry? A well established team will use their experience to optimise your claim values, and to ensure all of the relevant work is identified for each period.

2.     Knowledge - Do their team have a strong industrial background, broad industry knowledge and understand the guidelines?

3.     Service - Do they provide a fully managed service, leaving you to focus on running your business? You should establish how much of your time and input is required.

4.     Support - Do they support you in the event of an HMRC enquiry?

5.     Relationship - Some companies want to tie you in for years, others prefer to build a relationship with you through providing good service.

Your accountant may be able to offer advice, but unsurprisingly it’s not an area many accountants feel comfortable with. The HMRC guidelines suggest a technical report is provided to support the claim, and while your accountant will undoubtedly have an idea of the industry you’re involved in, it’s not a natural fit for them to develop a deep technical knowledge of your developmental processes, or to communicate that to HMRC inspectors in the correct way.

Some larger accountancy practices have individuals or departments who specialise in R&D tax relief, and they may be able to offer the right level of expertise to optimise your claim, but directors often choose a specialist company to work with.

This decision is usually based on an advisor’s understanding of the legislation and experience of working in your industry and their knowledge of the HMRC guidelines. A percentage of your claim value is charged as a fee for their services usually based on success only (no win no fee) and as you might expect there is a variation in charges, service, experience and knowledge.

For impartial and free initial advice, and to find out how G2 work with clients please get in touch.

WHAT ARE R&D TAX CREDITS?

R&D tax credits or ‘Research and Development (R&D) Relief for Corporation Tax’ to use the full name, is run and administered by HMRC.  It is designed to encourage investment in R&D and new product development and currently provides around £1 billion in tax relief to companies each year.  The scheme was set up in 2000 and is a vital Government incentive in supporting businesses and helping the UK economy to grow through innovation and development.

The scheme has improved significantly since its inception, with the rate of relief increasing consistently and restrictions being relaxed, extending the benefits to more companies.

OUR SERVICE AT A GLANCE:

  • Fully managed service
  • 100% success rate
  • Payment only when you see the benefit
  • No set-up fees or expenses charged
  • No long-term tie-ins
  • Team with industrial experience and expertise

Want to put these 5 questions to our team? Book a free consultation and we'll happily answer them for you!

 

This post was written by our Commerical Manager Alex Atkin

Changes in the Corporation Tax Landscape

Changes in the Corporation Tax Landscape

The Office of Tax Simplification (OTS) have recently published a report on the ‘Simplification of the corporation tax computation’.   This sets out their recommendations for how the corporation tax landscape should change.

A significant suggestion from the report is that smaller companies should be taxed on their accounting profits.  This would remove the need for making separate and complex adjustments for tax purposes.  A company’s profit then could then be the same with Companies House and HMRC.  The target being greater compliance.

However, R&D tax relief for SMEs is applied when making those adjustments to a company’s corporation tax liability.  

The report has rightly highlighted that additional reliefs such as R&D should remain in place.  Therefore, an adjustment would be required if R&D tax relief remains the same.

The Association of Tax Technicians have noted that smaller companies could be guided so that they know which parts our extensive tax legislation can be ignored.

Making Tax Digital (MTD) will arrive in due course and it will be interesting to see if the bill (postponed by the general election) will be updated to reflect the OTS’s recommendations.  Indeed, the OTS has stated that some simplifications should be brought in with MTD.

MTD is a key part of the Governments plans to make it easier for businesses to get their tax right. This vision for modernising the tax system was introduced in March of 2015, but we're looking at introduction beginning in 2019

The reporting for corporation tax will be changing, but a place for claiming R&D tax relief will remain.

Read the full report on the ‘Simplification of the corporation tax computation’.

Find out more about Making Tax Digital.

 

6 Innovations in Energy Technology

6 Innovations in Energy Technology

It was National Clean Air day on June 6th, so we pulled together the most inspiring and innovative products & design contributing to a healthier planet.

Energy Innovation

The Uk's first electric trunk plant, run by Charge Automotive is due to open in Oxfordshire

Charge Automative have designed a competitively priced electric truck ranging from two to 26 tonnes, which can be built by one person in just four hours. The trucks are software based, which means they are updated and improved wirelessly.

Climeworks air-capturing plant takes C02 from the atmosphere and feeds it to vegetables 

Our high levels of CO2 are contributing to global warming, so it's great to see that people are looking into ways to produce sustainable energy and reduce CO2. At the same time we are actually producing CO2 for farmers, chefs and scientists. Climeworks have designed an ingenious solution captures CO2 from the atmosphere and feed it to vegetables.

Gulf Power launches energy storage R&D project with Tesla powerpack

The McCrary Battery Energy Storage Demonstration, a 250-kilowatt/one-megawatt-hour Tesla Powerpack lithium-ion industrial energy storage system, is designed to help industrial and commercial customers store and use energy on demand while improving resiliency.

UK government has promised to double energy innovation investments to £400m per year by 2021 

"The UK Government is committed to leading the world in delivering clean energy technology and today's investment shows that we are prepared to support innovation in this critical area," said Claire Perry, minister of state for BEIS, speaking at a clean energy showcase event.

Fantastic news! UK renewable energy generates more electricity than gas & coal for first time! 

National Grid reported that, on Wednesday lunchtime (7 June), power from wind, solar, hydro and wood pellet burning supplied 50.7% of UK energy.

Are you currently looking into research and development in this field? We've worked with businesses across industries supporting them to bring their ideas to life and find them through our R&D tax relief service.

 

 

 

 

 

Autumn Statement & spending review – R&D relief and spending

Autumn Statement & spending review – R&D relief and spending

The press headlines are focused on the personal tax credits and how the cuts have been shelved, with the new forecast from the Office for Budget Responsibility forecasting sufficient extra income to persuade the austerity to look elsewhere and save some political face.

Conspicuous by its absence though was mention of the R&D tax credits and relief. Having received a boost in the last budget announcement they were left well alone in the review, and remain a strong and highly effective incentive for technically minded companies. When done professionally they can reduce tax bills, provide cash from loss and allow greater investment in new development work. Ask us how we can help you access it.

A brief summary of the increases in R&D spending announced

·      Science resource funding to rise in real terms to £4.7 bilion per year for the rest of the parliament.

·      A new body is planned to be introduced, called Research UK. This will work strategically across the seven Research Councils (science focused funding and steering bodies), taking a longer term view. Innovate UK helps commercialise technology; this body will be incorporated into Research UK but still exist.

·      There is already a government commitment to spend to build the UK’s research base, to the tune of £6.9 billion between 2015-2021. Around £150 million (total capital and resource) will launch a competition for a Dementia Institute, to build on the UK’s strengths in medical research.

·      The “Northern Powerhouse” gets its own investment fund of £400 million to invest in smaller businesses. The Enterprise Zones programme for the Northern Powerhouse will also be doubled in size with 7 new zones and 2 extended. The government will also be providing £50 million for 2 new agricultural technology centres in York for the food and farming supply chain.

·      Good news for the north continues, with £15 million of funding to support further Northern Powerhouse trade missions including to key emerging economies, and £7 million for a “Northern Powerhouse Investment Taskforce”, to bring “the authorities and businesses of the North together to present a single internationally competitive offer to the world.”

·      Over £130 million capital will be invested in Department for Environment, Food and Rural Affairs’ (DEFRA) science facilities, with £5 million specifically to further improve the HQ of the Centre for Environment, Fisheries and Aquaculture Science following its 5 year renovation.

 

The complete statement:  https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/479749/52229_Blue_Book_PU1865_Web_Accessible.pdf

 

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Why not find out more about R&D Tax Relief on our blog

 

 

Research and Development thrives with R&D tax credit claims up by nearly 25%

Research and Development thrives with R&D tax credit claims up by nearly 25%

The heartland of UK industry is the SME, and latest government data proves just how much technology development is still performed in the UK. The government’s R&D tax relief is aimed squarely at companies developing new technology, rewarding them with tax breaks for the technological risks they take, from developing new farm equipment to blue sky biotech.

R&D tax claims have risen almost a quarter in the last year from around 16,000 claimant companies to 20,000, with claim values totaling £350m. Since 2000, 120,000 claimants have claimed £11.4 billion in tax relief.

Small and medium sized businesses have been the star performers of the UK economy in recent months with the majority of these claims made by SMEs, which rose by 23% and large companies rising 4%. 

The rise was seen across the country but with London, the east and southeast continuing to be the highest areas for claims at a total of 46%of all claims SMEs from the rest of the UK should really look into the R&D tax relief as many are missing out. A typical claim value is around 20p in every pound spent on development, usually repaid in cash by HMRC.

As the popularity of R&D tax claims rise, the chancellor took the politiucal opportunity last year to further boost innovation by announcing an increase in R&D tax credits to 230%. This means that for every £100 of qualifying costs, the corporation tax paid by SMEs on income could be reduced by an additional £130 on top of the £100 spent - which is great news for business.

 

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NOTES:

SME –a Small to Medium sized Enterprise that is; less than 500 staff AND up to €100 m turnover OR up to €86 m balance sheet value

 

Why not check out our previous R&D blog post about how to prepare for a future claim

How to prepare for a future R&D tax relief claim

How to prepare for a future R&D tax relief claim

If you are planning a new research and development project and managing the associated costs you may also be considering the R&D tax relief it might attract. To prepare for future claims you can take some simple steps now to help ensure that all the costs are taken into account and you get the maximum benefit.

If it’s your first claim on previously completed work then different advice applies, so give us a call.

Create records of the technical part of your R&D

The R&D claim is completed at the end of each tax year, as it depends on your corporation tax computations (whether you are profit or loss making). Meet with your R&D staff each month, and briefly note down what you’ve been doing, who has been doing it, and what challenges you’ve faced along the way. Detail can be added later, but a timeline and record of people helps a lot.

Think about how you employ R&D staff

You can claim higher values if you employ someone rather than contract to them (see here) but there is always the balance of the risk of taking on permanent staff versus the freedom of sub-contracting. If you do sub-contract then make sure the invoices are for specific pieces of work for the R&D; a monthly “consultancy fee” for example is not an eligible R&D cost. 

Are you thinking of using grant funding for your R&D?

This requires some careful thought. If funding applies at all to your project then the whole project’s costs are dealt with differently. For example, an R&D project costing £200k that you fund entirely yourself could see R&D tax relief benefits of £40k. If, however, you use £10k of grant funding and pay the other £190k yourself then your tax benefit could be reduced to £12k. It’s more complicated than that (some more here) but generally speaking the grant funding should ideally be around half the project costs or more, and you should contain the scope of the grant to as tight a technical focus as possible.

What about recording the eligible R&D costs? 

If your R&D uses heat, light and power then keep a simple log of what you are using on the project, for example “1 hour R&D autoclave use”. If your R&D uses parts that you order, then start a cost code for R&D and use it to record the ordered parts. Follow these general principles for any other costs that you feel are directly related to the R&D, and those that are not actually eligible due to quirks of legislation can be removed when the claim is built.

 

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R&D Tax Relief: Is R&D spending a victim of austerity?

R&D Tax Relief: Is R&D spending a victim of austerity?

Is R&D spending a victim of austerity?

The Office for National Statistics recently released some data about government spending on R&D (here) and we’ve been having a closer look at it. If you were to ask a UK manufacturer if it’s up or down you could expect a negative answer, as budgets are slashed further each year in this age of austerity. The reality is a bit more complicated. UK public spend on Science, Engineering and Technology in 2013 (the last year we have data for) was £10.9 billion, an increase of 9% versus 2012 and on the face of it good news. It also reverses the downward trend in R&D expenditure that’s been there since 2009, but it’s still far from the pre-recession peak. There are winners and losers within these figures though, so let’s take a quick look at them.

Research Councils stay steady over a longer period

The government funded Research Councils invest in research, covering academic disciplines from medical and biological sciences to astronomy, physics, chemistry and engineering, social sciences, economics, environmental sciences and the arts and humanities. Their budget was increased for 2013, but when you take into account inflation it’s in real terms stayed at it’s 2008 level, following an increase from £2.5 billion to £3.4 billion between 2002 and 2008.  

University R&D spending

A similar story can be seen with UK higher education spending, with a slight increase from £2.1 billion in 2002 to £2.4 billion in 2013, again affected by inflation. The grassroots pressure group Science Is Vital says that the apparent rise is further misleading though, as the total figure includes an increase in capital spending but also a drop in cash funding for science projects.

Who lost out in R&D taxpayer spending?

There have been specific increases in expenditure from 2002, but the overall budget has stayed quite steady, so who has suffered? R&D in defence, dropping £2.1 billion since 2002. It’s subjective and controversial as to how defence R&D should be regarded, but it’s clear this is where the savings have been made. 

Our R&D spending versus our neighbours and competitors

Back to the bigger picture; the overall R&D figures put us in the position of spending the lowest proportion of our GDP on R&D of all the G8 countries (see below), with 0.5% spent, compared to an average of 0.8%, and this doesn’t compare favourably with our European competitors like Germany (0.89%) and France (0.82%) or our cousins across the pond with their 0.86% spend on R&D. We believe research and development is vital to the UK’s future (it’s why we do what we do) and while it’s great to see R&D spending starting to increase again, more is needed to keep the UK competitive.

 

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1:  UK Government Expenditure on Science, Engineering and Technology, 2013

2:  The G8 is: Canada, France, Germany, Italy, Japan, the Russian Federation, the United Kingdom and the United States

 

R&D Tax Relief: Dividends, salary, and bonuses

R&D Tax Relief: Dividends, salary, and bonuses

Dividends, salary, and bonuses – what can I claim in my R&D tax relief?

You can claim a range of payments for you and your staff, but there are some exceptions.

When you make a claim for tax relief via the Research and Development scheme you are claiming on behalf of the company, and the costs that it has borne in undertaking the R&D.

Some of these are obvious – like the parts used in making a prototype. Some are less so, like the complex subcontracting rules (see my last blog), or types of pay and how much of those costs to add to the claim. 

Full-time salaried staff and their eligibility

You’ll be able to claim on the taxable salary of someone working on the R&D, plus anything that the company pays into a pension for that employee.

You can also claim the Employer’s National Insurance contributions, but you can’t claim the employee’s N.I. or their personal contributions to their pension. You can claim bonuses too, as they are taxable. 

Expenses and Benefits In Kind

This area is a surprising one, as you can’t claim expenses paid for by a company credit card, but you can claim for expenses paid by an employee and then repaid by the company to the employee.

Don’t forget, of course, that the expenses have to be directly related to the R&D itself; as an example, a market research trip to a trade show is not R&D. Non-cash Benefits In Kind (like cars or accommodation) cannot be claimed.

Directors pay and the R&D claim

Directors paid by salary fall under the same category as other full-time salaried staff, with the same restrictions. Dividends, however, cannot be claimed, and this can impact on claims, especially for smaller companies.  

How much of each person’s costs can I claim? 

This isn’t an easy question to answer, sorry! It will vary based the involvement of each person.

Interested in talking to a R&D Tax Advisor about your potential claim?

Book a free consultation with us, we live and breath R&D and we've 17 years of expertise, with a 100% success rate!

 

R&D Tax Relief: Grant Funding

R&D Tax Relief: Grant Funding

Does grant funding stop me being able to claim R&D tax credits? 

No, it doesn't, you can still claim R&D relief and tax credits. What it does do is affect what and how you can claim, and complicates the claim process, which is easy to get wrong. R&D driven companies are often recipients of grant funding, and it's still worth doing both. I'll briefly cover the main ways they interact, but individual situations are usually more complex and need dealing with on a case by case basis. 

Who gave you the grant?

Let's start with the assumption you are an SME (definition below), so you are claiming the higher level of R&D enhancement of 130% (more here if you need it). If your grant is from a UK source it's highly likely it's classified as "State Aid", and this prevents you from claiming at the SME rate. You can still claim though! The reasons are complicated, but you can claim R&D relief under the Large Company part of the R&D relief scheme. The Large Company enhancement rate is only 30%, but bear in mind that you've already used the grant to reduce your costs, and you'll be claiming on the entire cost of the project, not just your own contribution to its costs. For this reason it's worth considering using a grant (if you accept it's own potential pitfalls) along with claiming R&D relief.

Europeans are different

Your grant funding might come from a European source, where many of the grants awarded are not classified as "State Aid", and the way you claim changes again. The "State Aid" rules are there to ensure as level a playing field as possible across member states, but funding from the EU itself often isn't subjected to this. In this situation you claim the funded part under the Large Company part, but your own expenditure is under the SME part of the scheme. Your grant provider will clarify whether your funding counts as State Aid or not, or we can help.

All or nothing? 

So you've had grant funding, and you can claim R&D relief, and the good news continues. You might think that if you've got "State Aid" grant funding your entire R&D claim will be under the Large Company scheme. It's actually possible to claim both SME and Large Company relief in the same accounting period, as long as the funded and unfunded work are in separate projects and identified carefully.

Can I get paid now? 

You might have heard that companies claiming under the Large Company scheme can only save tax in the future through carrying loss forward, but actually since April 2013 you can get cash back with that scheme too. Yes, this is a summary of the highest level, so please give us a call if you think this will apply to you, or in fact if you have any questions about anything I've written.

 

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NOTES:

SME –a Small to Medium sized Enterprise that is; less than 500 staff AND up to €100 m turnover OR up to €86 m balance sheet value 

Enhancement values – when you worked out your profit you recorded your costs at what they cost you, 100%. For SMEs you can add another 130% to your R&D costs, and for Large Companies an extra 30%. These act to reduce your taxable profit and save you tax….. 

 

See our previous blog