Research and Development tax credits are probably the most valuable tax incentive available to UK companies developing new products.
Lots of people have heard of the tax scheme and yet still don’t claim. Worse still, some make inappropriate claims that trigger unnecessary and stressful HMRC enquiries!
Sometimes neither a company nor their accountant recognise that it actually qualifies. But even in those cases where a claim is thought about, an accountant lacking technical knowledge will need to ask the client to write the R&D report supporting the claim. As a result the report only claims a fraction of what qualifies or the client never gets round to writing it at all! We had a case where a cautious client had claimed £600 in relief, which was increased to over £40,000 after we were brought in!
How much of my time will it take?
Not as much as you might think. We typically need a single 2hr meeting with a client to get enough technical information to write the report for HMRC. I spent 20 years working as an engineer so I can speak the same language as your technical staff.
During that meeting we will agree a simple list of the numbers needed to do the calculations which can be sent to us by your financial colleagues. After that, the process is handled between ourselves and your accountant, with your role simply being to approve the final submission and decide how to spend your tax refund!
What sort of activities will qualify?
You have to set out to make an advance using science or technology, which is a very broad definition. Advances can be in either products or processes, so it an example might be a project to redesign a product such that it has the same functionality but now costs half as much to manufacture would qualify.
It’s hard to be specific about costs as quite a wide range of activities can be included. Generally speaking the qualifying costs are profit & loss items such as such as staff salaries, and materials consumed during the development project like prototypes and testing costs. Items such as capital equipment or dividends are not included.
One important allowable cost is that of subcontractors, where the R&D tax credit can significantly reduce the project cost for an SME.
How much is it worth to me?
Roughly speaking as an SME you can receive around £25 for every £100 spent, either as a tax refund (if you already paid tax) or as a payable credit (if you are in a loss making position).
The rules for subcontracted work are slightly different, but as an example, spending £100k with a partner company would generate an additional tax credit of just over £16k. For a profitable company that means that the net cash impact of that £100k project would be just £64k.
There are actually two R&D tax credit schemes, so if you’d like a bit more information on each, take a look at the links below:
- The SME R&D Tax Credit Scheme
- The RDEC Scheme (for large companies, or small companies receiving grants)
What are the benefits of using an R&D specialist?
It saves time for both you and your accountant. With over 20 years’ experience as a scientist and engineer I can spot relevant R&D activity usually by way of a single meeting with technical & finance staff. The process is risk free as there are no upfront fees. We charge a small percentage of the tax saved, and that is only payable once you have received your payment, so you are never out of pocket.
Why not talk to us on the phone and we can let you know if we think you have a claim?
We’ll happily call you back if you leave your details on the form here.