SO, WHAT IS R&D?
R&D stands for Research & Development. R&D is a government incentive designed to boost innovation across multiple industries. This is an opportunity for the businesses to reduce their Corporation Tax bill or receive a refund from HMRC based upon the working hours & expenditure that have been dedicated to R&D.
HOW DOES R&D WORK?
Companies that spend money developing new products, processes or services (enhancing existing ones) are eligible for R&D tax relief. If a company is spending money on innovation they can make an R&D tax credit claim to receive either a cash payment or Corporation Tax reduction. The claim for R&D tax relief can be made for the last 2 completed accounting periods.
- For SMEs they can claim up to 33p for every £1 spent on qualifying R&D activity. The average claim made by SMEs in the UK during 2018-2019 was £57,228.
- For Large companies they can claim up to 11p for every £1 spent on qualifying R&D activities. The average claim for a large company in the UK during 2018-2019 was £632,931.
We don’t believe that the government has done enough to raise awareness of the scheme as analysis shows that businesses are significantly underclaiming R&D potentially losing multiple thousand’s of pounds.
There are a lot of companies that state they have a 100% claim record, this is true but the reason why it is true is HM Revenue & Customs have not yet investigated many.
R&D is a specialised area to which not all accountants or consultants have knowledge of. You’ll be surprised how many clients we have taken on recently from previous accountants and other service providers that have failed to follow correct legislation. It’s not just figure work, it’s identifying what is classed as R&D.
We have undertaken specialised training and have software which complies with HMRC to ensure you have an audit trail and can also offer advance assurance which give companies a guarantee that any R&D claims will be accepted.
Advance Assurance is used to give companies a guarantee that any R&D claims will be accepted if they are:
- in line with what was discussed and agreed
- claimed within the first 3 accounting periods
A company does not need an Advance Assurance before applying for R&D tax relief, but it may give you a reassurance that should an investigation happen you have already received acceptance from HM Revenue & Customs. Remember HMRC have not yet completed any investigation which is why R&D claims companies often state they have 100% claim record.
What projects count as R&D?
The work that qualifies for R&D tax relief must be part of a specific project which makes an advance in science & technology. The project must also relate to the companies trade. You must be able to explain how a project:
- Had to overcome uncertainty
- Tried to overcome uncertainty (remember not all projects have to be successful)
- Looked for advance in science & technology
- Could not be worked out easily by a professional in the field.
What costs can you claim?
You can claim costs once your project starts until you develop or discover the advance, or the project ceases.
You can only claim for staff working directly on the R&D project, you can claim for a proportion of their
- Class 1 National Insurance Contributions
- Pension fund Contributions
You can also claim for support staff who are working directly on the project and can claim for 65% of the relevant payments made to external agencies if they provide staff for the project.
Subcontractor costs can only be claimed if if directly undertaken by:
- A charity
- A high education institute
- A scientific research organisation
- A health service body
- An individual or partnership of individuals
Costs you can’t claim
- The production & distribution of goods/services.
- Capital expenditure
- The cost of land
- The cost of patents/trademarks
- rent or rates
What Industries can claim?
Any industry can claim R&D, as long as they are a Limited Company and are seeking to improve, innovate or overcome challenges or uncertainty in their projects and processes.
- Information Technology
- Waste Management
- Oil & Gas
- Food & Beverage
- App Development
The list is endless and if you are unsure whether you can make a claim just get in touch and we will provide friendly & professional advice