Is Research & Development Tax Relief available for your Company?

First published on 12 September 2019
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In recent years M&S Accountancy and Taxation has submitted successful R&D tax credit claims that have resulted in our clients saving hundreds of thousands of pounds in tax.  For these clients it has proved an extremely worthwhile exercise.  if you want to find out if these tax credits might apply to your business, please read on!

In recent years we have submitted successful R&D tax credit claims that have resulted in our clients saving hundreds of thousands of pounds in tax.  For these clients it has proved an extremely worthwhile exercise.

The criteria to qualify for R&D tax relief is more straightforward than you may imagine and the potential benefit to a successful claim makes it definitely worth looking into for your company.

HMRC guidance states that a company can claim “R&D tax relief if a project seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty”. In simple terms, this means that relief may be available for companies that develop a unique product, service or process that incorporates an element of new technology.

Making A Claim 

R&D claims fall under two schemes depending on the size of the company.  If a company employs less than 500 staff, and has an annual turnover of less than €100 million, or a balance sheet of under €86 million it falls under the Small or Medium-Sized Enterprise (SME) scheme.  Companies that do not meet this criteria are covered by the Large Company scheme.  Although the general principles of these schemes are similar, the details below relate specifically to the SME scheme.

The most challenging part of claiming R&D tax relief is in identifying what expenditure is actually allowable.  The main areas that are likely to qualify are:

Staff Costs

The gross salary, employer’s National Insurance Contributions (NIC), and pension contributions are allowable for employees directly involved with R&D work.

   

Utilities

Power, water and fuel used directly in R&D work is allowable.  However, costs such as telephone and internet do not qualify.

   

Materials

Physical materials that are consumed or integrated in a product as part of the R&D process.

   

Sub-Contractors

65% of the cost of sub-contractors used as part of the R&D process are allowable.

For the majority of companies, it is near impossible to directly allocate the exact amount of some expenses, such as utilities between R&D work and the general trade.  In these circumstances, HMRC allow for reasonable apportionments.

Is It Worth It? 

Once all of the qualifying expenditure has been identified, there are two ways in which a company can get relief under the SME scheme.

The first of these is through an additional tax deduction.  All qualifying expenditure is enhanced by 230% in order to reduce the company’s taxable profits for the year resulting in a significant corporation tax saving.

For example, if a company had qualifying expenditure of £100,000, its expenditure would be enhanced to £230,000.  As £100,000 is already included in the company’s expenses for the year, the actual reduction in taxable profits is £130,000.  At current corporation tax rates, that is a saving of £26,000.

Alternatively, if a company has made a loss it can claim a tax repayment at a rate of 14/5% of its losses. However, by choosing to receive a tax credit, the company surrenders its taxable losses.  It may therefore be worth considering carrying forward the losses to obtain the full corporation tax relief (current rate is 20%).

If you believe that your company may meet the criteria for R&D tax relief and would like our advice and assistance in making a claim, please get in touch.  Time invested at the outset, planning and preparing, are key to a successful claim with minimal HMRC delay.  Currently if there are no additional HMRC enquiries into the claim you can expect the claim to be approved and the benefit received within 3 to 4 weeks.  Certainly something to consider!

Note that if we do undertake work for a client, although our fees are agreed in advance, unlike many companies advising on R&D tax credit, we do not apply our fees on a fixed percentage of the tax credit identified. For some of our clients this would literally run into tens of thousands of pounds and also possibly apply on an annual basis. In our view, this does not represent good value for money. Instead, our approach is to identify the possibility of a claim at the outset and then agree a fee for the work based on the actual time that will be required to prepare, submit and agree the claim with HMRC.

Successful Claims

M&S clients have benefitted from R&D Tax Credit claims in the following sectors and industries: 

  • Software Development
  • Dental Laboratories
  • Instrumentation
  • Engineering
  • Construction
  • Renewable Energy
  • Oil and Gas Decommissioning

Stewart McKinnon, Director

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