It is hard to believe but it’s true, the Government has a vested interest in your business growing and is giving money in the form of R&D Tax Credits against R&D qualifying costs. I’ve helped businesses understand and maximise their use of these schemes if you want to get in touch drop me a line.
If you grow your business then the Government gets great benefit and wants you to do more of the same because:
- The jobs you create employ people
- More money is pumped into the UK economy from the profit your products or services generate
- Your ideas, improvements and creativity drive increased innovation and lead to better products and services
- Better products and services keep the UK relevant on the World stage
Is this a real thing?
Well, between 2000, when the R&D tax credit schemes were launched, and 2014-15, over 141,000 claims have been made and almost £14.0 billion in tax relief claimed against R&D qualifying costs.
- By the end of 2014-15, 39,360 different companies had made claims under the Small and Medium Enterprise (SME) scheme.
- The total amount of R&D support claimed rose to £2.45bn in 2014-15 – an increase of £675m (38%) from the previous year.
That’s a lot of money being handed out to SMEs just like yours across the UK for innovative work to be undertaken.
Isn’t it only London that gets this money? Is my Business Eligible?
It is true to say that the majority of the claims have gone to London and the East.
R&D claims and the amount claimed continue to be concentrated among companies with a registered office in London, the South East or the East of England (47% of all claims and 63% of the total amount claimed).
But it’s not a scheme problem, it mainly because not enough SMEs know that this money is available.
Also, they are confused as to what constitutes eligible R&D expenses and therefore do not even attempt a claim as they don’t think they are eligible.
How do SMEs benefit?
The most common way for SMEs to claim R&D tax credits was by a deduction from corporation tax (CT) liability, with 10,935 claims made this way for 2014-15, compared to 3,485 claims made for a payable credit.
A cash sum is payable although at a lower rate for a loss-making company (14.5% rather than the full 20%), payable credits are claimed by loss-making companies which have no CT liability against which to set the deduction.
Some Businesses use “Combination” claims to offset Corporation Tax
In some cases, a SME can first use its R&D tax credit to reduce its tax bill to zero, and then take the rest as a cash payment.
In other cases, a SME with no tax bill might choose to take some or none of its R&D tax credit as cash, with the remainder being carried forward to future years to offset against corporation tax, these are referred to as “combination claims”.
SMEs doing work for Larger Companies can claim
An SME claiming will get a higher rate of relief than a large company claiming.
However, SMEs working for large companies as sub-contractors or receiving related subsidies can claim under the large company or RDEC scheme.
In 2014-15, SMEs received £70m in support from either the RDEC or Large company scheme.
Which Sectors are making claims?
The figures show a concentration of claims in the ‘Manufacturing’ (30%), ‘Professional, Scientific and Technical’ (20%) and ‘Information and Communication’ (25%) sectors
Could my company be eligible for R&D Tax Credits or R&D Expenditure Credit (RDEC)
If your business meets the following:
- Has less than 500 employees
- An annual turnover that does exceed €100 million
- A balance sheet that is lower than €86 million
Then you would be classed as an SME and eligible for these benefits. A common question is “how much can my business claim?”.
What are eligible R&D qualifying costs?
HMRCs requirements are purposefully broad here for R&D qualifying costs.
If your company is taking a risk and tackling uncertainties (successfully or not) then that activity is likely eligible for relief.
If your company is:
- Creating new products, processes or services
- Changing or modifying existing products processes or services
If you’re not sure if what you’re doing is possible either technologically (which doesn’t just mean IT and electronics) or scientifically (okay this is a bit more specific), then you are tackling uncertainty and qualifying for R&D Tax Credits.
You don’t have to have been successful, all the thinking, designing, planning, preparing, prototyping, building, testing, breaking and fixing are activities and time expended that is a valid cost in innovating and R&D.
The materials you’ve used, the person hours you’ve burned, the sub-contractors or suppliers used, software and training you’ve needed and the space used in this endeavour are valid expenses and R&D qualifying costs.
Next Steps and the two year window
If this sounds like your business or project then you could be missing out on a payout.
HMRC allows you to retrospectively claim for the previous two years, so if you’ve recently undertaken work that qualifies then you could be entitled R&D Tax Credits.
Get in touch by email or call Richard on 07929 206 504 and I’ll be happy to help.
If you learned from this article then you might like to read R&D Tax Credits – Are you missing out? by Trevor Shields.