Below are our most asked questions
Broadly speaking, anyone can submit a claim for R&D tax relief; you don’t have to be a technology company. The HMRC Research and Development Tax Credits Statistics Report, September 2020, lists 19 different industry sectors that submitted successful claims for tax relief on their R&D activities. If you are looking for ways to reduce costs, make better use of your resources or improve efficiency, these activities may be eligible R&D. This is especially relevant where you need to carry out research to explore whether a particular solution or approach will be more effective.
- A project needs to succeed to be eligible – Not true, any project can be eligible.
- Loss-making companies can’t claim – Not true, but you must be a going concern.
- It takes a lot of effort to prepare a claim – Our aim is to minimise the amount of work that you have to do, so you can focus on your core business.
- We don’t do R&D – Are you 100% sure? Many businesses are unaware that some of their activities are classed as research and development.
- It’s just a one off – This tax benefit scheme has been available since 2002 and is still considered by the government as a key part of the UK R&D strategy.
When assessing your project for possible eligibility, we will ask three questions:
Did you have challenges that:
- You did not initially know how to solve?
- You did not have a clear route to a solution?
- There were a number of possible solutions, but it wasn’t clear which one would provide the best result?
If any of a) to c) are true, then it is likely you have “technological uncertainty” which makes the activity eligible for the R&D tax claim.
Put simply, this means you had a technological or engineering problem that you didn’t know how to solve. Suppose that you asked three of your engineers for a solution to a problem, you might get the following situations:
- They all agree, no question, on what the best solution is. There’s no technological uncertainty.
- One of them disagrees with the other two, but after some discussion they reach an agreement on what the solution is. Again, there is unlikely to be technological uncertainty, but keep an eye on this just in case it doesn’t work as planned.
- Each engineer has a different solution and cannot reach agreement on which approach is likely to be the best. You have technological uncertainty.
When preparing a claim for R&D relief, the following costs can be included:
- Staff costs, including agency staff
- Employers National Insurance
- Employers pension contributions
- Consumables, including utilities.
In certain situations, you may also be able to include:
- Expenditure on contractors or specialists
- Materials (including discarded prototypes or discarded materials)
Costs of production and materials that are embodied in sold products cannot be claimed.
There’s no easy answer to this, as tax relief will be specific to each business, both in terms of the work being undertaken and how the business is performing. However, after decades of experience in this sector, we often secure a reduction of around 10% for a corporation tax bill.
You will only pay a fee when your claim has been settled by HMRC. Generally, we charge a percentage of the relief agreed and this ensures the support that we provide has a positive cashflow impact. Most importantly, this also means that if there is no relief agreed, then you won’t owe us anything. We like to tailor our pricing to suit each client as we recognise that every business has unique circumstances. For our preferred pricing structure, please get in touch.
In short, yes. There are two types of grant to consider:
- State notified aid
- Non notified aid
For a project that receives State notified aid, any claim for R&D relief must be made through the RDEC scheme.
Where a project benefits from non-notified aid, and would otherwise be eligible under the SME regime, the project as a whole remains eligible. But the subsidised costs would need to be claimed through the RDEC scheme.
Whoever you choose to partner with, you should ensure they have the technical or engineering background to understand your challenges and an in-depth knowledge of the R&D regime. Generally, an R&D tax specialist will have a broader base of experience than an accountant. Our collaborative approach often includes working alongside your accountant to support you through the claim process.
It would be inaccurate to suggest that claiming is risk free, but by understanding the legislation, a claim may be prepared with minimal risk. Common mistakes are when whole or part projects are not eligible, or miscalculating which costs are eligible resulting in overclaiming. But the reverse also happens, and companies can unwittingly under claim. By engaging with an R&D specialist and following a robust process, your business will be safeguarded against these risks.
Yes, loss-making companies can claim with the caveat that they must be a going concern. The RDEC is an above-the-line credit payable independently of whether the company is profit or loss making. Under the SME regime, a loss-making company may elect to surrender losses attributable to R&D. Although as an alternative, losses may be carried forward to a later period to offset profits. How you choose to take the relief is up to you.
- Never assume that what you do won’t or doesn’t qualify as R&D.
- Misunderstanding the boundaries for eligibility. This can lead to ineligible projects being claimed or, even, eligible projects being missed.
- Miscalculating the allowable costs. Again, including ineligible costs or missing costs that are eligible.
As with any self-assessment tax assessment, you must be able to support your claim for tax relief with evidence. Without evidence to support the claim, or if this is incomplete, would result in the claim being rejected.