By Jeni Lee, Tax Manager at Bracey’s • 5 min read
Since the R&D tax relief scheme’s introduction in 2000, the UK government has set itself a target to spend 2.5% of GDP on Research & Development (R&D). This target is yet to be achieved, with 2018 only resulting in a 1.7% spend.
This begs the question, is your company missing out on claiming and if so, why?
The fact is that companies which are carrying out R&D activities are often unaware that they are doing so.
Is your company eligible for R&D tax relief?
R&D tax relief is available to UK companies who are carrying out R&D as part of their trading activities.
Many companies fail to identify that they are seeking a scientific or technological advance. R&D does not have to involve white lab coats and test tubes; an advance can be as simple as generating a new method to create a product or improve efficiencies. R&D can be carried out in almost any industry.
Company directors and shareholders may also consider the following:
- Is my company seeking an advance in a field of science or technology to create a new product, process, or service?
- Does seeking the advance involve uncertainties and challenges for which the solution is not easily ascertainable?
- Would another professional in the field struggle to find the solution?
If you think there is a slight chance that your company is carrying out the above, then it is definitely worth having a conversation with Bracey’s in-house experts. The first meeting for an initial discussion is free and a simple conversation could lead to thousands being taken off of your company’s corporation tax bill or it may even result in a cash credit being paid to your company.
How does R&D tax relief work?
A company which has incurred qualifying revenue expenditure on R&D has the option of claiming additional tax relief.
Where the company is a Small or Medium-sized Enterprise (an SME), the company may claim an additional deduction at 130% of its R&D expenditure. A company is classified as an SME if it has less than 500 employees and turnover below €100m or gross assets of less than €86m. If the SME company is profit-making, this will result in tax relief equating to almost 44p for every £1 spent on R&D. Where such claims are made, the government is essentially funding almost half of the R&D project.
Where the relief creates or increases a loss, the company may surrender that loss for a cash tax credit. For loss-making companies, the tax relief available equates to 33p for every £1 spent on R&D.
A large company has the option of claiming the R&D Expenditure Credit (RDEC). Under the RDEC scheme, companies can claim back up to 11p for every £1 spent on qualifying R&D expenditure.
Which costs could qualify for R&D tax relief?
- Wages costs (including Employers NI and pension costs)
- Subcontractor and externally provided worker costs (usually restricted to 65%)
- Software costs
- Materials and consumables
100% R&D allowances are also available for capital expenditure on R&D equipment and buildings.
How do I make an R&D tax relief claim?
An R&D tax relief claim is submitted as part of your company’s corporation tax return.
A company has two years from the end of its accounting period to submit a claim. Therefore, for an accounting period ended 30 June 2018, the submission deadline is 30 June 2020.
What are the benefits?
Due to COVID-19, thousands of companies are struggling with cash flow, as such there could not be a better time to consider making a claim for R&D tax relief, in the hope of receiving a cash credit or significantly reducing your company’s corporation tax liability.
As mentioned above, companies must make claims within two years of the end of an accounting period. As such it is possible to amend previously submitted tax returns where R&D tax relief claims were missed, this can be invaluable as it can result in a refund of tax previously paid.
The tax incentives of innovation do not stop there. R&D tax relief is the initial tax relief available during the early stages of the innovation lifecycle. Where companies are successful in developing a product or process which becomes patented, they may be eligible for further tax relief. The government’s Patent Box incentive reduces the tax rate applicable to profits generated by patented products to 10% from 19%.
If you suspect your company may have been carrying out R&D but has not been claiming for R&D tax relief, it is definitely worth having a conversation with Bracey’s in-house experts. An initial conversation could lead to huge tax savings or a cash credit, which HRMC aim to process claims within 28 days.
Bracey’s has an exceptional track record of making successful claims for R&D tax relief. We have worked with a wide range of companies operating in a multitude of industries; from jewellery manufacturers developing new methods and materials to create bespoke jewellery, to construction companies that have created panoramic lift shafts using new techniques. It might not always be obvious if your company has been carrying out R&D, but we have the experience to help you ascertain if your company’s activities qualify.
We ensure that all of our claims are handled in a streamlined manner; making the process as simple as possible whilst maximising the claims made. Our experts carry out a thorough review of the company’s expenditure to ensure that all relevant costs are captured and included within the claim, this is not straightforward and that is why it is imperative to employ an R&D expert to maximise your company’s claim.
We offer a free meeting to help you determine if your company’s activities qualify for R&D tax relief and if so, we can talk you through the process of making a claim in more detail. If you think your company might be missing out, then please feel free to contact us and we can very quickly determine whether that is the case.