How the research and development tax credit could save you money
If you haven't heard of the research and development tax credit before, or are unsure of its application then it's important to review your expenditure to understand if your company can qualify for this relief. This is because your research and development (R&D) projects could provide a significant boost to your cash flow.
Unfortunately, many organisations fail to realise that their activities are eligible meaning they miss out on potential tax savings.
What is R&D tax relief?
Projects being undertaken with the aim of achieving a scientific and/or technological advance through the resolution of uncertainty in these areas of work, are classified as R&D. This means R&D doesn’t just apply to medical research and laboratory work, far from it.
If you’re improving processes in your organisation, or attempting to, then there may be a case for making a claim. Your activity doesn’t have to result in a successful service, process, or end product to qualify.
Costs associated with exploring a new idea, or initiative, may be eligible even if the project fails, or is cancelled.
How does R&D tax relief work?
R&D costs are applied to reduce your corporation tax liability. It works whereby if your business is eligible then you can claim an enhanced deduction of up to 86% of your qualifying R&D expenditure. This means that for every £100 spent on qualifying R&D, your business can deduct an additional £86 from its related taxable profits. This can result in a significant reduction in your corporation tax liability.
Questions to ask yourself:
- Have you developed your own software?
- Have you developed internal processes that reduce costs and improve production times?
- Are you using existing technologies in a unique way? Are you using two or more existing technologies in a manner where they've never previously been combined?
- Do you carry out any design work?
- Do you manufacture products?
- Has your organisation made advances in science and/or technology?
What are R&D tax credits, how do they work?
In the event that your business is loss making, R&D tax losses can be surrendered to HM Revenue & Customs (HMRC) for a cash refund, also known as a tax credit. This means that in instances where less than 40% of your total expenditure is on qualifying R&D, you can claim 10% of surrenderable losses back as a cash payment. If however, your R&D amounts to more than 40% of total expenditure, then the credit increases to 14.5%.
We have obtained claims successfully for businesses in a vast range of different areas and have saved our client base on average £1.6m per annum through R&D projects.
We find the following sectors tend to benefit from R&D related claims:
|Food & beverage
Things to consider
Do you have new products or services in the pipeline that might qualify?
Have you reviewed your existing products or services against the criteria stated above?
Do you have any current or pending patents that might cover services or products for eligibility?
How robust are your back office reporting systems? Can they track this income accurately in the event of a review by HMRC?
What we do
Legislation concerning R&D tax claims is complex and ever changing. It requires an in depth understanding of your organisation, the law, and how it’s applied.
In the first instance we would look to hold an initial free meeting with you to explore and understand your expenditure. Relevant work and projects undertaken can then be identified. This allows us to assess the merit of a potential claim against the government’s complex eligibility criteria.
The process with our team is as follows:
- Identify qualifying projects and costs
- Work with you to prepare a detailed narrative and explanations about the projects being claimed for
- Prepare calculations for submission to HMRC
- Liaise with HMRC on any matters arising