These are some of the most commonly-asked questions we receive. They are all answered here. If your question doesn’t appear, or you need more detail, please contact us or use our online chat facility.
The R&D Tax Relief Scheme
Introduced by the UK Government in 2000, the R&D tax relief scheme is designed to encourage innovation and global competitiveness by allowing companies to reclaim some of the money invested in qualifying research and development.
What constitutes R&D for most people may be very different from HMRC’s interpretation. According to HMRC, a company is undertaking R&D when they are 1) overcoming technological uncertainties aimed at, 2) achieving an advance in technology and 3) which isn’t readily deducible by a competent professional.
The effect of an R&D tax claim is to reduce taxable profits or increase taxable losses. The claim can reduce profits, reduce profits and create a loss, or increase pre-tax losses. There are three main types of tax benefit that arise from a successful claim for R&D Tax Relief – these are 1) a payable cash credit, 2) a rebate of corporation tax and 3) an enhanced deduction that can be carried forward.
You can go back two full financial years (that’s your company’s financial year, not ‘tax’ years).
This is irrelevant for the purposes of the scheme – it’s the R&D activity that’s important, not the outcome of the project.
R&D Tax Credits Eligibility
For eligible projects, it is the money spent on salaries, externally provided workers, subcontractors, software, utilities and materials ‘consumed or transformed’, such as such as chemicals, materials, batteries and certain forms of tooling.
Subcontracting can be a tricky situation in an R&D tax credit claim, but it doesn’t necessarily mean you can’t claim. You need to be very sure about your contractual situation, the work you are contracted to do and who is bearing the brunt of the cost, as all these can have an effect on the eligibility of subcontracted work.
Under the SME scheme, 65% of payments to sub-contractors can be claimed except if the SME is connected to the sub-contractor (e.g. is its parent, part of the same group, or are under common control). The rules are different for connected sub-contractors.
No. There is no requirement that the sub-contractor should be in the UK. However, it is important that the sub-contractor is engaged to perform a specific task rather than providing a service.
R&D Tax Relief & HMRC
No. This is a Government scheme fully supported by the Treasury and HMRC. In fact HMRC recently announced a number of measures to make the scheme easier to access.
Although the majority of claims will be processed by HMRC without the need for further information, some are not so fortunate.
This process is call and enquiry and can happen because:
- HMRC are looking at other tax issues related to your business, and your R&D claim will be included.
- You've claimed before, but this claim is much larger.
- You're technical justification is insufficient, or not compelling.
- Your claim focusses on a technology which HMRC are seeing more often - and they want to ensure a consistent approach.
HMRC might have a simple question, or could ask for emails, spreadsheets, invoices, contracts and other correspondence.
To date, 1.2% of our claims have been subject to an HMRC enquiry. We have successfully defended all of them.
No. This is a Government scheme fully supported by the Treasury and HMRC. It has been in operation since 2000.
We do most of the work. Larger claims will often (but not always) take longer than smaller claims. We need to understand the projects you carried out, establish qualifying R&D and capture the costs associated with that R&D activity. We absolutely want to keep your time-commitment to a minimum.
Firstly, our techies talk with your techies. We prepare and submit your R&D tax credit claim and then you receive a lovely cheque or tax benefit.
Clients normally get their money 4-6 weeks after submission. Our quickest time from submission to payment was 1 week!
From April 2017, SMEs can recover up to 25% (if in profit) and 33.35% (if loss-making) of eligible expenditure, while Large Companies can claim back up to 12% (subject to Corporation Tax).
Generally, an SME is a company of up to 500 people, with revenues of less than €100m or balance sheet assets of less than €86m. A Large Company is everyone else!
Yes, there are two schemes for R&D tax relief. One is for SMEs and the other is for Large Companies.
Only Limited Companies can claim because they pay corporation tax. Partnerships, Charities and Sole Traders cannot claim.
R&D tax claims and your accountant
The Accountant route is often assumed to be the logical choice because it is a tax process, however, if the claim is assessed properly the activity is 80% technically focused. The great majority of accountants are not technical and will not understand what you do, how you do it, the context of your projects and known industry alternatives and therefore generally submit conservative claims that are largely under the legitimate entitlement for the client.
That’s a conversation for you to have with your Accountant. However, it is a very simple task to include our calculation in your return.
That may well be the case. However, as R&D Tax Specialists, we can often find genuine eligibility where a non-specialist (most Accountants) cannot. Get in touch with us to talk it through.
Yes – we have worked with many Accountants over the years. Contact us to find out how we can work together.
Working together with accountants, we find and maximise the eligibility while accountants utilise its tax benefit. We always complement rather than compete.
In a little more detail:
- We minimise the demands on your time by doing most of the work on your behalf.
- We minimise the complexity of the claim process by relating each of your project activities and expenditures to specific clauses within the tax legislation.
- We minimise the risk of either under-claiming what you're entitled to or over-claiming and inviting an HMRC audit, using the experience gained from over 4,500 successful claims.
- We maximise both the accuracy and value of your claim.
You should consider using a specialist – someone who prepares claims day in day out, who keeps abreast of the latest changes in legislation (and HMRC’s interpretation of it) and who has a strong and proactive relationship with those responsible for approving your claim.
Grants and subsidies can move a portion (or all!) of an SME’s project from the SME scheme to the Large Company scheme. It is therefore possible – and relatively common – for SMEs to be able to claim under both schemes for one or more projects.
As a rough rule of thumb - If an SME gets a grant or subsidy that is State Aid, that project’s claim may have to go through the Large Company scheme.
If an SME gets a grant or subsidy that is not State Aid, its claim can be split between the SME and Large Company schemes. Large Companies are not affected by grants and subsidies.
Yes! The crucial thing is that companies have to be spending money, and the more they have spent on eligible activities, the greater the benefit and some loss-making companies may be eligible to receive a cash credit.
Yes you can. However, HMRC’s guidance on claiming R&D tax credits, which runs to several hundred pages, puts most businesses off going it alone. You face the risk of getting it wrong and either under-claiming what you’re entitled to or over-claiming and prompting an HMRC investigation. Working with a specialist makes the process easier and safer.
An R&D claim enquiry defence is included in our fee. Every claim we submit to HMRC goes through our rigorous process and we have the utmost confidence in its accuracy. We will robustly defend any claim submitted on your behalf.
Our fee rates are negotiable and always competitive - contact us for a quote.
Yes, you can. Please contact us for more details.