Research and Development (R&D) tax credit presents a fantastic opportunity for many businesses to reduce their tax liability and receive immediate funding for a variety of different projects. There are many different types of businesses that could be eligible for R&D tax credits, but it can be confusing when it comes to defining these opportunities and conditions that have to be met before you can make a claim.
If you are considering the possibility of back claiming R&D tax credits, then you will be happy to know that the claim time is two years from the end of your accounting period.
So, this means before this period ends, you should ensure you have submitted any claim for qualifying expenditures. R&D tax credits come under Corporation Tax relief, and the deadline for those amendments is usually 24 months after the end of your accounting period.
A typical accounting period is 12 months. So, for example, if you file on the 31st of March usually, then you have until the 31st of March 2021 to make a claim for the accounting period that ended the 31st of March 2019.
As soon as you hit that deadline, you can no longer submit the claim for any R&D tax credits for the period between the 31st of March 2018 and the 30th of March 2019.
In other words, you have two years to claim for the spend in any given year.
Backclaiming can be a confusing process trying to work out what counts what doesn’t. When you need to have all of your supporting evidence complete to the highest standard. As well as trying to navigate how much of the criteria apply to you. Then knowing where you can find help matters.
The first thing you’re going to need to do is showing HMRC the details of precisely what you have spent on your and the activities. You’ll do this with a Technical Narrative and a financial table. And, you are then going to have to explain how that spend conforms to the rules that they have published.
The more complicated part that can be somewhat challenging is to show HMRC that you have clearly understood and met all the criteria for research and development tax credits. Most of HMRC’s inspectors will not have the time to study and understand all of the technology that you use in your industry, so it’s up to you to show them what do you do, why it’s essential, and the significant impact you make.
You’re going to need to ditch the jargon and use language that is clear and easy to follow.
This is where a company like Veritas Noble can come into play. We have over 3 million paid out in R&D tax credits, and in other words, that’s a 100% success rate.
What Can My Company Get?
There is a range of percentages you might be able to claim when it comes to R&D tax credits.
- For large companies, you are looking at up to 10% of your R&D spend.
- For SMEs that are making a loss, they can expect to get to 33% (which is the equivalent of 33p for every £1 spent).
- For SMEs that are breaking even, you’re looking at 15%.
- And, those that are making a profit, you’re looking at 25%.
This is because if you are profit-making, you will already have reduced your taxable profits by the R&D expenditure under standard corporation tax rules. The R&D tax credit is in addition to this initial reduction that you have received. So while at first glance an SME loss-making company receives more, that’s actually not the case.
So What Are R&D Tax Credits?
In 2000 the UK government unveiled research and development tax credits. These are tax incentives for innovation. They are also vital sources of finance for organisations are want to accelerate their R&D programs.
Any company that has been spending money on developing new services, products or processes, or has enhanced on existing one is highly likely to qualify for R&D tax credits. But it is always worth working with a professional company to check your eligibility.
R&D Claim Facts
For the year 2017 to 2018, there were 48,635 R&D tax credit claims. Of that number 42,075 are in the SME are in the scheme.
In terms of money that equates to £4.3 billion of R&D tax relief, support claimed from 2017-2018.
HMRC is now paying more than ever in R&D tax relief. In 2016 – 2017 they paid at a massive 4.4 billion. This is demonstrating that the government has confidence in the scheme, and is maintaining the benefits. This is despite the increasing cost to them.
There are some surprising sector growing with the use of the R&D tax credits. The Manufacturing Industry continues to be one of the largest beneficiaries of the scheme. And in fact, they claim an impressive a £1.33 billion in 2016 – 2017.
‘Professional, Scientific and Technical’, and ‘Information and Communication’ sectors received £990 million, and £805 million respectively.
And one of the sectors that showed the most significant percentage of the total amount is that was claimed was ‘Accommodation and Food’, which is a 100% increase of 10 million.
Something that interests most small businesses is the average claim value. The average claim value for the SME scheme has been £49,173.
The average claim for software development, for example, has been 64,236 for the SME scheme. For the RDEC scheme, it’s been £682,242.
Of those exciting financial figures, Veritas Noble has been responsible for over £3 million in R&D claims and has a 100% success rate.
Which Scheme?
Before you consider any R&D tax relief application, you’re going to need to choose the right type of scheme for you.
For SMEs you’ll be looking at having under 500 staff, make no more than 100 million turnovers or 86 million in growth assets. Almost all start-ups and small to medium size companies will fit nicely under this category.
The RDEC scheme is aimed at larger companies. They will typically have over 500 employees, they will also have a minimum turnover of 100 million, or have 86 million gross assets.
The distinction between the two is pretty clear.
What are my real options for submitting an R&D tax credit claim?
There are two options you have when submitting an R&D claim to HMRC.
- Do it yourself
- Hire a professional team to take care of it
The latter is also the most efficient option. The experience that comes with a 100% success rate means you’re in the best hands.
Ready to start preparing to submit a claim for the R&D tax credits for 2019, then get in touch with Veritas Noble.
Research and Development (R&D) tax credit presents a fantastic opportunity for many businesses to reduce their tax liability and receive immediate funding for a variety of different projects. There are many different types of businesses that could be eligible for R&D tax credits, but it can be confusing when it comes to defining these opportunities and conditions that have to be met before you can make a claim.
Whether you’re thinking about hiring new employees, investing in the development of new products or even expanding your business, R&D tax credits can be a great source of funding to help with your business expenses.
What counts as R&D?
Let’s start by defining what counts as research and development.
- R&D involves the activities that a company undertakes in order to develop new products and innovate on its existing services
- R&D is generally separate from the operational activities performed by a business since it’s not immediately related to immediate profits
- R&D is carried in to help a company stay ahead of its competition and also to innovate in the industry
- R&D can be considered the first stage of a development process for a new product or service, or it can be considered a way to iterate on existing offerings
These are some general definitions of what counts as R&D. However, the official definition of R&D in the context of tax credits is as follows:
- Developing or designing new products and work processes
- Improving existing products and work processes through innovation
- Developing new prototypes or improving on existing ones
If your company carries out any of these tasks, then there’s a good chance that you’ll be accepted for an R&D tax credits application. The key takeaway here is that your company must be investing its money into a risk that may or may not pay off in terms of future profits. If you’re pouring effort, time and money into research, there’s a good chance you can claim those costs as an R&D expense.
Is my company eligible for R&D tax credits?
If your company is investing capital and taking a risk to improve, innovate or develop products, then there’s a good chance that your company is eligible for R&D tax credits. With R&D usually comes a lot of risk, so if you felt like the outcome of a project was uncertain since it utilized new ideas and concepts, then there’s a good chance that your company will be eligible for R&D tax credits.
If you can show that your recent projects were heavily related to research and development, then you can use it as the basis of your claim to begin calculating how much you could save with the help of R&D tax credits. If you can show that your project had plans to innovate and take existing technologies above and beyond, then you’ll have a solid foundation to help you make a claim for R&D tax credits.
If you’re unsure, don’t hesitate to contact us today and we’ll be happy to assist you. We can help you understand if your business is eligible for R&D tax credits and also how much you could be paid.
How many businesses claim R&D tax credits?
Almost any business that has some kind of innovation or development process will likely be claiming R&D tax credits. The definition isn’t completely set in stone; as long as your company is taking a risk by attempting to develop its products and services or innovate on existing processes, you could be eligible for R&D tax credits.
However, unless you’re knowledgeable of tax credits then you could risk underclaiming or even forgetting to claim altogether. You could be missing out on a considerable amount of money that would be helpful for everything from hiring new specialists to funding research equipment. In fact, many businesses that claim R&D tax credits don’t understand the full scope of what they can consider as an R&D expense, hence why they might be missing out on a lot of money.
So if you’re looking to get the most from your R&D tax credits, don’t hesitate to contact us today for more information. We’ll help you discover if your business is eligible for R&D tax credits and also help you calculate what you could be saving if you made a claim.
