New statistics from HMRC have revealed that there was a 22% year-on-year rise in the number of claims for Research and Development (R&D) tax credits submitted. Out of 48,635 R&D credit claims so far for the 2017-18 tax year, 42,075 are under the SME R&D Scheme.
How it works
First introduced in 2000, R&D tax relief is designed to encourage greater spending on innovation in the UK. The relief reduces a company’s tax bill by an amount based on the company’s allowable R&D expenditure.
A qualifying project ‘seeks to achieve an advance on overall knowledge or capability in a field of science or technology’. Under the SME scheme, companies can claim enhanced tax relief of 230% on qualifying expenditure. This means for every £100 of qualifying costs, the company could reduce its corporation taxable profits by an additional £130 (£230 in total) saving and additional £25 in tax by making the claim.
Cash in the tax loss
Where a company makes a taxable loss due to an R&D claim, the R&D tax credit scheme allows them to affectively cash in the tax loss, for 14.5% of the relevant loss. This can be a significant help when it comes to financing these kinds of projects, with just over 40% of R&D tax credit claims being made by Start-up companies.
Although this relief is sometimes perceived as being for starts ups, we have helped many established businesses make claims for projects aimed at developing new or improved products and services for their sector, helping them becoming a market innovator.
Not just for people in white coats!
Whilst the Pharmaceuticals sector accounted for 18% of the claims for the 2018 tax year, R&D is not only for people in white coats and laboratories! A project looking into anything that is not readily deducible by a competent professional and advances technological and/or scientific understanding is likely to qualify.
We have helped clients from a wide range of industries make claims for things like new software, apps, merging existing technologies for use in a new way, advancing processes to achieve better quality, greater efficiencies or produce items which simply could not be produced previously.
You should speak to us if your company has:
- Attempted to achieve something new
- Dealt with a particularly challenging project
- Developed non-industry standard processes to achieve greater efficiencies, precision or quality
- Worked in an emerging or highly specialist market
- Employed highly skilled, technical staff to solve unusual challenges
The next step, after identifying a qualifying project, is to quantify the expenditure relating to the project which would qualify for the relief. Generally, your staff’s time will form the bulk of the claim, however there may also be contractor invoices, materials and software costs relating to the project, which can be claimed for.
Although you would not necessarily require detailed time records, you will need to be able to calculate the time spent by your team on the project. Don’t let this put you off as this is often not a difficult as you might imagine! Don’t forget there is a two-year window for making claims so you may well be able to claim for the previous year too.
The statistics are showing more and more business are seeing this relief as an important source of funding, helping to finance projects necessary to keep them competitive in the current market. Don’t miss out! To discuss a potential claim, or a project your company intends to carry out, please contact Ian Meaburn.