By Emma Lewis, Myriad Associates
So your next company R&D project is planned to perfection; now you’re ready to jump in feet first. But have you thought about R&D Tax Credits?
It’s essentially a tax rebate, so that means you don’t need to think about it until the end of your project, right? Wrong!
With potentially tens of thousands of pounds at stake, you’ll want to maximise your claim to get back every penny of relief you’re owed. That’s why it’s crucial to consider R&D Tax Credits during the course of the project itself – not as an afterthought. Here we look at why.
What are R&D Tax Credits and who can claim?
Research and development (R&D) Tax Credits were launched by the government back in the year 2000. The scheme is designed to encourage company innovation but providing a generous tax rebate oncosts relating to technological and/or scientific advancement.
All UK companies, regardless of size or sector, can apply for R&D Tax Credits as long as they are registered for UK Corporation Tax. It’s incredibly valuable too, with as much as 33% of qualifying R&D expenditure reclaimable. Upon successful application, the award is then administeredas a reduction in Corporation Tax. However, loss-making companies can receive it as a cash credit instead – well worth knowing as many start-ups will not turn a profit for the first few years.
“The total number of R&D tax credit claims that were made in 2020 was 85,900 which is a 16% increase from 2019. This shows us that R&D was still a priority for many businesses, despite the struggles they faced during 2020”, according to R&D tax specialistsMyriad Associates.
R&D Tax Credits can only be claimed by limited companies. This means sole-traders and other non-incorporated businesses are currently ineligible.At the moment, this may be you. However, if your business grows quickly you may wish to incorporate soon, so it’s still relevant to know.
Keep meticulous records right from the get-go
It’s often hard to remember what you did last week, let alone six months ago. But keeping accurate records of your R&D, including itemised costs, will go a seriously long way in making a successful R&D Tax Credits claim. It will also help you devise your technical report.
Why is record-keeping important for an R&D technical report?
The whole point of the report is to describe clearly to HMRC inspectors what your project was about, and to justify your claim. Trying to do this retrospectively will not only be incredibly difficult, but could easily lead to an HMRC enquiry into any inaccuracies.
As your company’s R&D project progresses, keep accurate details about:
- The purpose behind the project, and the expected outcomes
- What technical or scientific advances were made
- Could these challenges be easily solved by a competent professional working in your field?
- Will the wider sector your company operates in benefit from the scientific/technical knowledge gained?
- Is research, analysis and testing taking place?
- Was the project a success or failure in its goals
If your company’s record-keeping around R&D hasn’t been as good as it could be, a tax relief claim is still very possible. However, the chances of being awarded the entire amount you’re entitled to really depends on how accurate your records are.
Planning for R&D Tax Credits gives you time to seek expert advice
Even the smallest of companies will innovate at some point. And just because a company – and an R&D project – may be small, doesn’t mean it’s not worth claiming. Far from it. In fact, latest R&D statistics published in September 2021 show that for the year ending March 2020,£4.4 billion in R&D Tax Credits was claimed by UK SMEs alone. Certainly not the kind of cash to be sniffed at.
Although the scope and eligibility of the scheme is incredibly broad, making a successful application for R&D Tax Credits is unfortunately notoriously difficult. This makes getting specialist advice all the more important – after all, how else will you know what costs as claimable as you go along? And how are you meant to know what the rules for claiming actually are?
The devil, as they say, is in the detail.
You’ll support your R&D roadmap too
“With a roadmap you can assess the success of your new developments from the past more objectively. It also provides you with a concrete roadmap for your future research and development activities.” – Lead Innovation
Long-term R&D projects can all too easily get forgotten amongst routine daily work- especially when you’re just starting out. Time flies by and when it comes to business there just aren’t enough hours in the day.
By creating a detailed R&D roadmap, you’ll lessen the chances of leaving your R&D tax relief claim to the last minute. Your roadmap should show you where claimable costs have occurred, as well as help you plan your next project. It’s also a great opportunity to build your brand strategy.
When you set out your R&D roadmap you’ll be forced to consider not only the R&D you want to tackle but how it will relate to an R&D tax relief claim. Documenting your thoughtswill also help you communicate your ambitions with employees and stakeholders. Such transparency essentially means everyone’s singing from the same hymnsheet.
You should think of your roadmap as ever-evolving though. It’s not just something that gets filed somewhere and forgotten about. Objectives, costs and budgets can change quickly, making it vital to update your roadmap along the way.
Start-ups and small companies need to grow if they’re to stand any chance of surviving long term. Research and development is an essential tool in doing this.
Despite some economic green shoots, many businesses are still reeling from the effects of the pandemic. This makes it all the more critical that any R&D Tax Claims are maximised.
Understanding the R&D Tax Credits scheme and what’s required right from the start can make a massive difference to funding your next step.