R&D tax credits are a valuable U.K. government tax incentive

Company directors should read this. Also, firms providing technical and consultancy services to companies should read this, as your services might be classed as "subcontracted research and development (R&D)" undertaken by your client, and thus make the client eligible to reclaim the subcontractor's fees from HMRC.

R&D tax credits are a valuable government tax incentive created to repay companies, who used retained earnings trying to achieve something, which was technically challenging. 

The goal of the HM Revenue & Customs R&D scheme is to reward past effort and to encourage future R&D spending, as R&D benefits industry and the UK economy. HMRC estimate that, in the long term, they gain £17 for every £1 spent on R&D tax credits today. R&D tax credits can reward either profitable companies or loss making companies by giving these companies a significant cash repayment.

Most companies qualify for the relief on R&D. Far more companies than many people think are eligible for the scheme. In fact, HMRC itself estimates that only 3% of eligible companies ever make a claim.

Your staff do not need to be in white laboratory coats undertaking cutting edge research to make a claim. This is a huge and probably the biggest misconception surrounding R&D tax credits. Also, remember that your accountant's primary job is to audit your accounts and not to claim tax credits for you.

ELIGIBILITY

To be eligible for tax credits put simply you need to demonstrate that your company has taken a risk when you were faced with technical or scientific challenges that required a programme of effort to overcome.

Your company can make a claim if your staff tried to achieve any of the following:

Create

Creating new products, processes, software or services.

Improve

Making appreciable improvements to existing products, processes, software or services.

Duplicate

Use the sciences or technology to duplicate an existing product, process, software or service in way that improves its use or performance. For example, you may have a competitor and tried simply to better that competitor's breakthrough.

A client of ours recently made a successful claim primarily because they adapted proprietary software in order to measure and monitor the performance of their plant. Another client installed energy saving equipment in a previously untried environment and, with the support of the supplier, modified the systems to ensure that the solution worked. Yet another client in the waste disposal and haulage business claimed ten of thousands because he introduced traffic management and driver management software leading to significant improvements in the performance of his vehicles. Many famous household brands have used our services with considerable success, even after their accountants categorically told them that there was no claim evident.

THE R&D JOURNEY

Think of a R&D project as a journey. Maybe it started when you were faced with scientific or technical challenges and you lost sleep because solutions were not readily identifiable by your technical team. Perhaps, your competitors were faced with similar challenges and they solved them. However, because the competitor is not willing to share the information and lose their competitive advantage, there is no publically available information which could be used by you. In these and similar circumstances, the work you undertake wrestling with the issues and trying to find solutions to these challenges can qualify you for research and development tax credits.

The project doesn’t even need to be successful. If you could not find a solution to these challenges and the project failed you can still make a claim. And you can claim retrospectively for the previous two financial years.

WHAT CAN I CLAIM FOR?

The expenses your company incurs in trying to overcome these scientific or technical challenges can form the basis of an R&D tax credit claim.

The following expenses may be included in calculating a claim:

  • Expenditure on staff including gross salaries, employers NIC and employers pension contributions;
  • Expenditure on agency workers;
  • Expenditure on subcontracted R&D activities.

HOW MUCH CAN I CLAIM?

The amount you can reclaim is dependent on whether you are an SME or a Large Company. The definitions used for R&D tax claims are specific to this scheme.

To qualify as an SME for R&D tax credit purposes your company must have fewer than 500 employees and one of the following: Either turnover of less than €100m or gross assets of less than €86m. A large company is one which breaches the above thresholds.

If we assume that you run a Profit making company spending £100,000 a year on R&D eligible costs:

  • We estimate that you could recieve up to £26,000 as a corporation tax refund or reduced liability (based on a 20% corporation tax rate). However, in addition, we can probably reduce your corporation tax rate to 10%.

If we assume that you run a Loss making company spending £100,000 pa on R&D eligible costs:

  • We estimate that you could receive up to £33,350 as a cash payment from HMRC.

WHAT TO DO NEXT

Our aim at Aspen Waite is to make the claim process as simple and strightforward as possible. We work alongside you every step of the way, tailoring our service to your specific needs. The bespoke process we provide for you will be led by one of our board level staff, who will provide a professional, well-planned and efficient claim generation route.

We charge fees only if your claim is successful. So all the work done in making the claim is without any costs to you unless and until the claim is successful. And as we are regulated by the Financial Conduct Authority, this ensures that there is no risk to you or to your company.

EMAIL me by clicking on the link stuart.morgan@aspen-waite.co.uk or copy and paste the link into your email app to arrange a FREE no obligation consultation.

 

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Stuart Morgan
09.10.2017