Four Benefits of R&D Tax Credits You Might Not Have Known

You might have heard about research and development (R&D) tax credits and the advantages they can offer to innovative UK companies, but they can be a daunting prospect. Many companies can significantly benefit from claiming, but they don’t know how or where to start, or if they’re even eligible.

R&D Tax Credits were launched in 2000 by the UK government, offering a further incentive to innovation, especially for SMEs who may need the extra help to invest in business growth through R&D. R&D tax credits have only grown in popularity since, but there are still many businesses who are unaware of the scheme or what it can do for them, potentially missing out on thousands of pounds. Perhaps they don’t realise that their company qualifies, or their projects aren’t innovative enough. Others might be worried about the complexity of the claim process, or don’t know where to begin.

At Tax Cloud, we’re on a mission to change this. We’ve put together a list of some of the benefits of R&D tax credits that can inspire positive change for a company.

Benefit #1: Any sector or industry can be eligible

One common myth about R&D tax credits is that only companies in science and technology will be eligible. However, any company can make a claim; plenty of companies have made successful claims in industries that are typically light on R&D. Recent data shows claims in nearly all sectors have increased, including spaces less often related to R&D like wholesale and retail trade. At Tax Cloud, we’ve seen claims from businesses in construction, agriculture and education – even one or two bakeries have made successful claims!

The only requirements companies must fulfil to make an R&D claim is being UK-based and registered to pay Corporation Tax. Any innovative activity completed in a company meeting these conditions will likely qualify for R&D tax credits. The project must seek to advance science or technology, as deemed by a competent professional; if you have a project which resolves a specific uncertainty, R&D tax credits are within your reach, no matter the industry or project.

There are two branches of the tax credit scheme, to accommodate for the variety of companies and circumstances applying for R&D tax credits.

To claim as an SME, businesses must:

• Be a limited company
• Have closed their accounts
• Have 500 or fewer employees
• Have an annual turnover of no more than €100 million or a balance sheet of less than €86 million

Larger companies or subsidised projects will have to claim through the Research and Development Expenditure Credit (RDEC) scheme.

Benefit #2: Many costs can qualify

One of the most time-consuming parts of the claim process is working out the qualifying costs that you can claim for, and at what rates. This is why Tax Cloud is the preferred tool of so many companies for making claims, as we prompt you exactly on what you can claim for and do the calculations for you.

Generally speaking, R&D costs that can be claimed via the RDEC or SME scheme are:

• Staffing costs (salaries, wages, NIC and pension fund contributions)
• Subcontractor costs and externally provided workers
• Software
• Consumable items used in the R&D process (materials and utilities)
• Clinical trials volunteers

There are some exceptions and rules to all of these categories, which is why we advise getting in touch with expert R&D tax advisors, like Tax Cloud, before making your claim, so that we can catch all the costs first time, as well as avoiding expensive and stressful HMRC enquiries.

Benefit #3: No minimum claim requirement

There’s been plenty of confusion over the minimum claim amount, due to a change in the rules by HMRC in 2012, when companies had a £10,000 minimum requirement, which may have put off many smaller companies. Now, there is no minimum amount companies need to have spent on R&D activities to be able to make a claim, although some might still not be aware of the rule change.

Tax Cloud is a great option for these smaller claims, as we offer the same quality service as you would expect from a full-consultancy R&D tax specialist, but at a rate of 5% of the corporate tax saving. We have even developed a calculator for you to estimate how much you could save through our portal.

Benefit #4: Even loss-making companies can claim

Loss-making companies are often in need of the boost which comes with claiming tax credits, however they often think they won’t be able to claim for this very reason. Loss-making companies can receive R&D tax credits so long as they are approved by HMRC, albeit at a different rate of relief. Even projects which failed or are ongoing can still be included in R&D claims, as long as they sought advances in science and technology.

SMEs who are loss-making can receive between 14.5% and 33% of qualifying R&D tax relief and larger companies or subsidised projects claiming through the RDEC scheme could attract relief of 9.7% of eligible R&D expenditure. These companies can also choose not to surrender the loss and instead carry it forward or backward against profits.

Coming to a specialist in R&D tax credits can help you navigate the more difficult aspects of a claim. We work with you to understand your past, present and future tax positioning to assess the best route and to maximise your tax relief claim from HMRC.

How can Tax Cloud help?

Tax Cloud is an R&D tax credit portal, powered by Myriad Associates, which puts you in the driver seat of your claim, fully supported by our team of experts. We will be happy to answer any queries, quell any fears and disabuse you of any myths around R&D tax credits. We work with our clients throughout the whole process to facilitate your application and maximise your claim.

Use our Tax Cloud calculator to get an estimate of what you could claim, contact us on 0207 118 6045, or use our contact form for professional advice on whether you can claim R&D tax credits.

Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud