Many companies out there are keen to get some help with the research and development aspect of their business. However, it has become more noticeable that many are very confused by the Government scheme, how exactly to claim and the benefits associated.
Inspired by this, and keen to promote the benefits of the tax relief, CEO Today, in association with L.A.C. Conveyor Systems, speaks to R&D expert Jamie Smith, Co-founder of DSMRandDTaxCredits, to clear up any misunderstandings around this research and development tax relief scheme.
Jamie says his firm’s goal and main aim is to provide complete support on R&D tax credits from the beginning to the end of the process. He stresses that the scheme is massively underused with many accountants not offering a service to take advantage of the R&D scheme.
Do clients usually find the topic of tax relief confusing?
Yes, most clients approach us because they find the topic confusing in some way. Just the name ‘research and development’ causes some misunderstanding – people assume that it refers only to work done in a science lab or involves high level computer technology.
Other clients have almost entirely ruled themselves out because either they don’t have a dedicated R&D department or because they are not inventing an entirely new product. All of these common, incorrect misconceptions put businesses off enquiring altogether, so we’re always delighted when they actually ask us and we can give them the good news!
Of course, further confusion arises as we start working together on their claim. Most commonly, identifying which of their projects are eligible and what costs are applicable to their R&D tax relief claim.
People just don’t realise that they are ‘doing’ R&D. You need to apply an in-depth knowledge of HMRC’s definition of R&D to your business to see which projects fit the criteria. Clients often forget, or don’t know, that it’s not their concept of R&D that determines their eligibility, but HMRC’s. To be eligible for R&D tax relief, your project must seek “… to achieve an advance in science or technology through the resolution of a scientific or technological uncertainty….” This has its own layers of meaning that need to be unpicked and matched with clients’ individual businesses.
In terms of costs, it’s not just the materials used to produce a new item that are eligible. This preconceived notion snowballs into people underestimating the value of this tax relief. But there are a whole range of eligible costs, including the proportionate amount of staff expenditure spent on the R&D project. You do have to be familiar with the intricacies of the regulations to ensure that you don’t miss out on any costs you are entitled to.
The main takeaways for our somewhat bemused clients are:
- You do not have to be inventing a whole new item or process for it to qualify as HMRC’s definition of Research and Development.
- Your business does not have to be in the scientific or technical sectors. Innovation is pursued in every industry; therefore R&D tax relief schemes are accessible to all business types.
- Our average claim is worth £49,000 – definitely worth a few hours of your time to check and see which projects are eligible.
Why is R&D tax relief beneficial?
Obviously, the most important benefit is the amount of money available – around 25p for every £1 you spend on an innovative project. It is a very generous tax relief that can be claimed even if your project fails and/or your company is making a loss. It really is set up in the spirit of innovation and provides substantial sums for our clients to invest in their future.
R&D tax relief is just the best area of tax to work in because there is no down side. If you make an enquiry about your company’s eligibility, the worst news you will get is that your current project isn’t eligible for R&D tax relief.
What advice would you give to SMEs looking to innovate / claim R&D tax relief?
If your business is considering applying for R&D tax relief, the first thing to do is ensure that you meet the basic criteria:
- Limited company registered in the UK and a going concern
- Paying UK Corporation Tax
- Independent company – not a subcontractor or sub section of a bigger company
If you tick all of these boxes, then the best advice for SMEs looking to claim R&D tax relief is to speak to a properly qualified R&D tax credit expert. You need to marry specialist knowledge of the R&D tax relief scheme with your business specifics. You don’t need to ditch your accountant; most R&D tax relief specialists only focus on R&D claims and will work alongside them.
Each element of your R&D tax relief claim must be tackled diligently and accurately, in order to avoid a delay in processing your claim. This includes a ‘technical narrative’, methodology, cost breakdown and the records which provide the supporting evidence. Your future projects will then have administration systems in place to enable, preferable, cumulative record keeping.
If you haven’t started the actual project, you can get the help you need to have these requirements taken care of from the start.
Do not dismiss your business’s potential eligibility until you have discussed it with an expert. It’s a matter of looking at your business through the prism of R&D regulations, which is notoriously difficult to do when you are in it.
All innovative research and development need money. Applying for R&D tax relief should be a top priority to secure future investment. You are investing in innovation, you are entitled to the money, don’t waste the opportunity.
Qualifying for R&D relief checklist
You must check off all three of these basic criteria for your business:
. UK registered limited company that is a going concern
. Submit GAAP accounts and pay UK Corporation Tax
. Independent, not a sub-contractor or part of a bigger company
For your project to be considered eligible for R&D tax relief, it must:
. Be risking the unknown to make a new product, service or process, or improve on an existing one. Sometimes, this is as straightforward as tweaking the technology.
. Your posed question is not easily answerable by your ‘competent professionals’
. Have a conclusion detailing the results of your research – it does not have to have been a successful project. R&D tax relief help is awarded for the process, not a successful outcome.
If you’ve ticked off everything in these two lists, you’re ready to have a conversation about how much your R&D tax relief claim could be worth.