Common Misconceptions About R&D Tax Credit Claims

Investing in the future is often expensive. Companies with a certain risk tolerance understand the importance of spending money on creating new technologies, improving processes, and modifying infrastructure. R&D investment is the main driver of economic growth in developed countries, which is why governments often try to encourage it.

In the UK, HMRC’s R&D Tax Credits program has been successful in spurring innovation and private investments in new technologies. These tax credits are directly responsible for 10% of all R&D investments in the country over the past two decades. However, there’s still a wide productivity gap between the British economy and its developed counterparts like Germany and the US. For every hour of work, the UK experiences lower productivity. Meanwhile, British businesses spend far less on R&D than other well-developed, high income nations.

Professional consultancy platforms such as Tax Cloud help make these tax credits more accessible for businesses of all sizes, but there’s no doubt the scheme is being underutilized. Here are some of the common misconceptions about the R&D tax credits scheme that could be holding investors and business leaders back:

Myth 1: Tax credits are for revolutionary breakthroughs

The R&D tax credits program is based on efforts and expenses. There’s no need to develop a ground-breaking piece of new technology or solve a technical crisis. Businesses simply need to account for all ‘eligible’ expenses spent on research or development and file a claim to gain tax credits that can offset these costs.

Myth 2: Credits are for big, profitable companies

R&D tax credits are intended for businesses of all sizes. There are, indeed, two streams of tax credits for R&D. Larger businesses can file claims under the Research and Development Expenditure Credit (RDEC). Small or medium-sized companies that employ less than 500 people, earn less than €100m, or have assets under €86m can file for a more lucrative version of the R&D tax credits.  Even loss-making companies can file for these tax credits against qualifying expenses.

Myth 3: Processing times are too slow

Much has been done to reduce the amount of time it takes to receive tax credits for R&D expenses. Since these tax credits are part of Corporate Tax law, the credits are released at the end of the fiscal year. However, the government’s Advance Assurance program could make these tax credits more accessible and faster to claim for small or medium-sized businesses.

Myth 4: Credits are for R&D budget increases

Some companies believe that the tax credits are intended for incremental R&D expenses. However, the government offers these deductions for total qualifying expenses regardless of the level from year to year. A flat R&D budget could still qualify for tax relief.

These common misconceptions could be holding businesses back from investing in new technologies to improve their operations. A professional platform or consultant could help you maximize the benefits of this program and help your business grow. 

Joshua Odigie BA (Hons)
Author Joshua Odigie BA (Hons) Marketing Executive
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Myriad Associates helps businesses maximise tax reliefs and secure R&D grant funds. We specialise in R&D Tax Credits, Video Games Tax Relief, Innovate UK grants, Horizons 2020 grants, and Research and Development Capital Allowance Claims.

  • Submitting R&D tax claims since 2001
  • 100% success rate
  • Over £100m claimed and counting
  • Industry leading specialists
  • In-house technical, costing and tax experts
  • Member of the Research and Development Consultative (RDCC) committee

Meet some of the team behind Tax Cloud

Barrie Dowsett ACMA CGMA Chief Executive Officer
David Farbey MA, FISTC, FRSA Senior Technical Consultant
Deborah Chapple ATT Corporate Tax Senior Associate
Lauren Olson MA, MISTC Technical Consultant