Viewing entries in
R&D Tax Credits

Budget 2017   R&D tax credits - Large enterprises to benefit from rate increase

Budget 2017 R&D tax credits - Large enterprises to benefit from rate increase

In response to the OBR’s gloomy forecast for the UK’s GDP, the Chancellor responded with his plans for investing in the UK to raise productivity by investing in R&D.  

Along with direct funding, the Chancellor gave big businesses a boost with R&D tax credits. Large enterprises will get a 1% increase in the rate of Research and Development Expenditure Credits (RDEC) to 12%.  This will give businesses a net return of 9.72% on their R&D expenditure.

The new rate for the RDEC will come into effect from 1 January 2018 – a more immediate change to get companies spending in the new year.  Meanwhile, the reduction of corporation tax to 17% by 2020 will stay on track.

There are also plans for an ‘Advanced Clearance Service’ for the RDEC, which we expect will operate similar to Advanced Assurance available to SMEs.

The Budget shows the Government is intent on the UK remaining an attractive prospect for innovation and productivity.

Wondering how much R&D tax relief you could claim? Find out with our tax calculator

Think tank suggests scrapping R&D scheme

Think tank suggests scrapping R&D scheme

The Institute for Public Policy Research (IPPR) published its ‘Industrial strategy - Steering Structural Change in the UK Economy’ this month, calling for R&D and Patent Box schemes to be phased down and ultimately largely abolished.

The IPPR acknowledged the importance of R&D tax credits in driving ‘long-run productivity improvement’ and keeping ‘the economy at the frontier of globally competitive sectors’. However, they argue:

A small number of large corporations reap 95 per cent of the patent box and 80 per cent of R&D tax credits. We estimate that between 57 and 80 per cent of R&D tax credits are deadweight, subsidising spending which would have happened anyway, at an annual cost of £1.8–1.9 billion.

We believe that the advantages of the scheme for SMEs is irrefutable, and to dismantle the scheme would be harmful to the UK economy. 

If we examine the ONS data released last month the picture looks slightly different, to the one painted by the IPPR.

In 2015-16, Small and Medium Enterprises (SMEs) submitted a total of 23,645 R&D claims compared with 2,610 by Large Enterprises (LEs).  In the same period SMEs benefitted from £1.165billion in tax credits.  As expected the LEs spend more on R&D on average and received a larger share at £1.43billion. But this doesn’t equate to the 80% of potential tax credits for LE’s quoted by the IPPR.

·        SMEs benefitted from £1.165billion from the R&D tax relief scheme in 2015-16.

Indeed, the number of SMEs claims in 2015-16 grew by 34% compared with only an 8% increase of claims made by LEs.

The original purpose of the scheme is to support SMEs, which it continues to do. So, are LEs to blame for the ‘deadweight’ having taken advantage of the scheme?  Is removing the scheme for the answer?

LEs using the RDEC scheme

It should come as no surprise that LE spend the most on R&D, but the IPPR have said that they would spend that anyway.

LEs can only use the RDEC scheme which currently gives a net benefit 8.91% on their investment, compared to a maximum of 33.35% for SMEs.

However, many LEs and Multi-National Corporations are closely scrutinising the cost of being in the UK. A deal for Brexit is still to be finalised and if the R&D scheme is scrapped the grass might start to look greener elsewhere.

A closer look at Corporation Tax

The main rate of corporation tax has gradually reduced since 2010 in line with the small profits rate so the UK is an attractive place for companies. This means the largest companies now pay the same rate of tax as the smallest.  This does not explain why LEs get more value out of the R&D scheme but does show the advantage that the larger companies have been gaining over the years.

Targeting R&D tax relief is not the only means of increasing productivity, and we think it’s counter-intuitive.  The IPPR even suggest this in saying that a 1% reduction in corporation tax for SMEs would boost productivity. 

So maybe rather than look to abolish R&D tax relief, which is now established and well used across the UK, the Government could look to revise it’s standing on corporation tax to level the playing field.

Only for the young?

IPPR conclude that the R&D schemes should be abolished save for SMEs younger ‘say, five years old’.

Piers Pye-Watson, our Tax Manager thinks that this would discriminate against older struggling business who might want to innovate:

‘Our experience is that truly innovative SMEs have benefitted significantly from the scheme irrespective of their age.  Start-up have enjoyed tax credits when undertaking their R&D before the benefits of their trade have come in.  At the same time, highly skilled, experienced and market-leading but small manufacturers manage their cashflow on the basis that they will receive a smaller corporation tax bill or tax credit.

‘We have a client who needed to cut costs to keep trading during a dry spell and was considering staff redundancies. The payable tax credit under the SME scheme gave vital cashflow that saved their workforce until their new products provided the expected return.’

Improving UK productivity

UK productivity should be targeted and improved, but not at the cost of helping companies, especially SMEs, invest in R&D.

We can see that a fine balance must be struck.  The UK government must boost innovation and productivity with SMEs whilst keeping the UK attractive for LEs and Multi-National Corporations.

Where funding is available, the concept of a National Investment Bank, posed by the IPPR is a positive and direct move that could bolster the UK’s R&D.  However, setting up a new system would incur costs, when HMRC already have systems in place to provide the existing tax reliefs.

Philip Hammond gives his Budget this Wednesday, 22nd November 2017 and we will learn more about how the Government plans to tackle the challenges of increasing the UK’s productivity and R&D.

Read The Institute for Public Policy Research ‘Industrial strategy - Steering Structural Change in the UK Economy' 

 

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:

 

 

Who benefits from Research & Development Tax Relief?

Who benefits from Research & Development Tax Relief?

The HMRC Research and Development Tax Credits statistics came out this month and the future looks bright for R&D in the UK, with year on year growth of claims since the tax relief started.

Tax credits started in 2000 in a bid to support businesses to innovate and create new products. It appears it is working. Since the launch, there have 170,000 claims, with a total £16.5bn claimed.

HMRC R&D Tax relief statistics 2017

 

We’re pleased to see claims have risen by 20% to £2.9bn in the last tax year. Which is an increase of £470 million. Overall more people are aware of the scheme and the many changes over the year make it even more favourable for businesses to claim.

Comparing this past year's rise of 20% looks rather small to the 47% rise between 2013/14 and 2014/15, but there have been a few changes in the R&D landscape over the past few years.

Firstly, the number of claims from SME’s doubled with the removal of the £10,000 limit in 2012/13. And then Universities and similar establishments were unable to claim under the RDEC scheme after 1st August 2015, which had amounted to £2bn of R&D expenditure.

R&D claims by large businesses

Larger companies are taking the lions share of the billions claimed every year, which is largely due to their bigger budgets when it comes to R&D spend.

The total amount of support claimed by large businesses increased by 17% in 2015-16. This increase may be due to HMRC’s move from the large company scheme to the RDEC scheme, which offers a higher rate of support. Out of the £2.9bn claimed in the last tax year, £1.5bn of this went to large companies.

The level of expenditure also rose by 4% this last tax year to £22.9bn. 80% of this majority was by companies claiming under the large company or RDEC schemes.

SME’s and start-up R&D claims

Things are also looking bright for start-ups; with 17% of the total R&D spend for 15/16 going to businesses trading for less than 5 years.

The removal of the £10,000 limit for R&D claims has seen SME claims double since 2012/13 and SME claims are still growing.

We can also look at how SME’s are claiming R&D tax relief. The majority of SME’s (12,700) opt for a reduction in their corporation tax liability. The rest (4,420) go for the cash payment alternative or a combination of tax reduction & cash.

4,745 of SME’s use these combination payments to bring their tax bill down to zero and then take the rest as a cash payment, which for a start-up can offer a great incentive.

_DSC0713.jpg

“It's fantastic to see the upturn in R&D claims. We’ve certainly seen an uprise in larger businesses claiming since the move to RDEC, and we’ve been dealing with more start-ups.

Although we deal with clients internationally, we would like to see more businesses where we are based, in the Midlands, taking up this offer. UK manufacturing is now 8th in the world, and a recent report by The Midlands Economic Forum pointed to the West Midlands outperforming the rest of the UK due to the strength of its manufacturing. However, R&D claims don’t reflect this, with Midlands businesses still leaving money on the table, with the largest claims coming from the South East & London.”

David Eilbeck MD, G2 Innovation

R&D claims based on area & business type

There has been little change to the concentration of businesses claiming in London and the South East. Combined they account for 36% of all R&D claims and 49% of the total R&D spend. That’s a huge amount of cash focused in the south of England. However, HMRC does state that this may not be an entirely true reflection as the location of claim isn’t necessarily the same location as the research and development.

We can also see that the key players in R&D are Manufacturing at 28% of claims, Information Communication at 26% and Professional Scientific & Technical at 20%.

R&D with G2 Innovation

We work with clients internationally; Most of our R&D clients are in the manufacturing and software industries, which covers all manner of businesses from oil & gas to agriculture. We want to see more and more businesses claiming R&D, it’s good for business and the UK economy.

We’ve been claiming R&D for our clients since they were launched in 2000 and in that time we’ve supported 100’s of businesses, in fact, we’re still working with most of them.

We’re different to our competitors because we actually do R&D ourselves, so our technical skills are second to none. Meaning all our claims are 100% successful.

Want to find out if your businessis eligible for R&D tax relief? Book a callback below:

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.

 

Minimising R&D claim risk – how we work with your accountant

Minimising R&D claim risk – how we work with your accountant

Regardless of the value of your tax relief claim, there is a small risk that HMRC might enquire into the tax return. 

However, by working closely with accountants and planning the practicalities of submitting the claim, this risk can be minimised.  

One key factor is to ensure that HMRC receive the figures and technical report together. 

We have only seen cases of enquiries into R&D tax relief claims when HMRC have received a tax return claiming R&D without the technical report to back up the figures.  Naturally, HMRC might want to know the credibility behind the figures on the return before agreeing to pay out a hefty tax credit.

Amending returns

One of the easiest and hassle-free ways in which to submit your claim is for us to provide amendments to the corporation tax returns already submitted to HMRC.  This is done directly with the R&D specialist team at HMRC under your authority which makes us your ‘R&D tax agent’. 

Where R&D tax relief claims have not been done by your company previously, we are usually looking at a return or returns that have already been submitted.  In those cases, we include amended tax returns and computations with our technical report so that they are received by HMRC simultaneously.

Where this is agreed with accountants we can continue to work in this way with subsequent claims. However, we appreciate this is not does not work for everyone and we always want to work with your accountant, not against them.

Working together

In some cases, your accountant may want to preserve the responsibility of submitting the claim.  Alternatively, if a corporation tax payment deadline is looming it would make sense that they submit a return with the claim inclusive figures.

In this instance, we can provide a supporting pack to accountants which explains the basis of the R&D figures being claimed and how it should be reported to HMRC.  These usually include advice for the return to be submitted on an estimated basis or a disclosure explaining that a supporting technical report is to follow.

Working with accountants to take these precautions will help to avoid unnecessary additional scrutiny before the supporting technical report is submitted. 

In either case, a good working relationship and understanding with your accountant is of paramount important and we will always want to discuss the best way of working for everyone.

Would you like to find out more about our R&D Tax Credits services? We'd love to hear from you.  Click the link for a free consultation.  We have 100% success rate on our tax credit claims, so it's well worth talking to us to see if you're eligible.

R&D tax relief: General Election, Brexit & The Industrial Strategy

R&D tax relief: General Election, Brexit & The Industrial Strategy

The general election on 8th June 2017 is fast approaching.  Regardless of the result, it will be in the future government’s interest to incentivise UK business as we leave the EU.   

The Industrial Strategy Green Paper released in January of this year, highlights the importance placed upon R&D in making the UK competitive. 

The UK is currently behind many of its rival EU member states in its R&D expenditure, being only 1.7% of GDP compared to the EU average of 2%.  The same measure places the UK behind France, Germany, Austria, Denmark, Sweden and Finland.  

Greg Clarke, Secretary of State for Business, Energy and Industrial Strategy recognised that the UK is excellent at research but falls behind in converting this to new business opportunities. One of the tools available to the government to improve this is the provision of tax incentives for businesses.

The call for a snap general election will prompt renewed focus on the UK’s competitiveness and the prospective government’s plans to improve this, building on the Industrial Strategy Green Paper.  These will range from directly supporting businesses and R&D to tax plans and as expected tax is already one of the election’s hot topics.

The election has also meant that elements of the anticipated Finance Bill have been dropped to get it through parliament before the election. Provisions for Making Tax Digital for Businesses was one of these victims.  Its arrival into legislation has been stalled and the roll out may also be pushed back accordingly. 

Previous plans set out under then Chancellor George Osborne for reducing corporation tax and other incentives for businesses may also change depending on the result of the election. 

The future government may have a different response to Brexit in the coming years.  If corporation tax remained at 19% or even increased, rewarding innovative businesses through the R&D scheme will become even more important to stay on track with the Industry Strategy Green Paper.

The previous Budget gave a brief comment on the R&D tax relief scheme: it was internationally competitive, effective and needed more advertising, but that the RDEC scheme for Large Enterprises (LEs) could be improved to make it easier for businesses.  Indeed, the R&D Consultative Committee has been discussing this simplification.  

The political parties have not yet published manifestoes, but we would expect to see a focus on boosting UK R&D and businesses in response to Brexit. 

Whether they then pledge to go further than the previous plans will remain to be seen.  

Specifically, we would like to see commitments to increase the rate of relief for both the SME and RDEC schemes to incentive and support UK innovative businesses.

We're pleased to see that Greg Clarke has announced the Industrial Strategy Challenge Fund, committing over £1 billion over the next 4 years, which can only increase research and innovation in the UK.

If you're interested in finding out whether your business is eligible for Research and Development Tax Credit book a free consultation.

You can read the Industrial Strategy Green Paper here.

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

 

0115 824 0402

 

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.

 

0115 824 0402

 

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.

 

0115 824 0402

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.

 

0115 824 0402

 

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: An Introduction

R&D Tax Relief: An Introduction

Is your work eligible for R&D tax relief?

You may have heard about the government’s R&D tax credits scheme and wondered if you were eligible for it. Before you spend too much time on it, you can figure out quickly if it's likely that you are eligible.

How advanced does my work have to be?

If you are doing gene therapy then great, you can claim! Most of us aren't though, and you might think that working in packaging, or in moving things about, or in metalwork or software means that you can't claim. We've claimed for all of these, and more.

Think about your company's working week, and think about how much of the time you are solving problems. If you are scratching your head over problems on a regular basis then it's worth looking at the scheme. 

Is your work creative or technical?

The legislation makes a clear distinction (along with a long, long list of other areas) over the difference between creative and technical work. Highly skilled craftsmen making luxury leather goods are most likely not undertaking R&D, but highly skilled engineers figuring out how to achieve a very high tolerance result could well be.

Can you claim if you are working for other people?

You might think that solving problems for other people might mean you are ineligible to claim tax relief on your work. Though the details can be tricky, working for another company does not necessarily stop you claiming your own tax relief.

Do you claim yourself or use a specialist?

These are just a few of the eligibility criteria that you have to know about, and whilst they are the most important when it comes to looking at the work you are doing there are many more, and that's before the tax computations side. Learning about all the detail takes a long time, and employing a specialist like us is often a better balance of time vs reward.

 

0115 824 0402