7 Most Common Misconceptions About R&D Tax Credits

Ever since the R&D Tax Credits scheme was launched in the year 2000, it’s been regarded year on year as a resounding success. In fact, each year as much as £4.3 billion of tax relief support is claimed in the UK, offering a valuable cash injection for businesses of all sizes in all sectors.

Investing in the future growth and development of a company is a costly process, and R&D Tax Credits are designed to help with it. Businesses are naturally cautious, but they know that in order to survive they will need to spend money on building new technologies, modifying infrastructure and improving processes. R&D investment is the key driver of economic growth across the world, which is why governments are often very keen to encourage it. However, there are still many misconceptions around R&D tax relief which can mean companies missing out on thousands. Here we lay some to rest for good.

1. You can’t claim R&D Tax Credits if your project failed. FALSE

Many businesses believe - mistakenly - that if they had to abandon their R&D work or the project ultimately failed in its goal then it won’t attract R&D tax relief. This actually isn’t true, because the main thing is that R&D work is undertaken - it’s about the ‘journey’ not necessarily the end goal. In fact, failed projects often strongly indicate that R&D work has taken place, which is therefore likely to qualify for the relief. Technical difficulty, experimental work and waste are all signs of scheme eligibility and can make up a major part of any claim.

2. Only companies that are in profit can claim. FALSE

Over past years, we’ve found that many companies don’t claim for R&D Tax Credits just because they aren’t profitable. This lack of profit could be for all sorts of reasons, but is particularly common in start-ups. Such companies often mistakenly believe that the relief is not aimed at them, which is completely untrue.

Loss-making companies can receive R&D Tax Credits as long as their application is deemed successful in the eyes of HMRC. How much a business receives however is dependent on the regime it claims under.

SMEs that have made a loss can claim between 14.5% and 33% of eligible R&D expenditure, whilst bigger loss-making companies or subsidised projects can attract relief totalling 9.7%.

Loss-making SME companies can also decide to carry the award forward/backwards against profits, instead of surrendering the R&D loss.

3. There’s a minimum spend to be eligible. FALSE

There’s no minimum (or maximum) amount that a company needs to have spent on R&D work in order to make a claim for R&D tax relief. Some businesses mistakenly believe there is a minimum, probably because there used to be prior to April 2012. In the years before then, businesses needed to have spent a minimum of £10,000 on relevant R&D projects in order to claim R&D Tax Credits, however this is no longer the case. R&D Tax Credit applications can be submitted for even the smallest amounts, which is fantastic news for very small companies and those with limited budgets.

4. Configuring an existing IT package constitutes R&D. FALSE

Unfortunately, simply putting together systems that are readily available on the market, however tailored and intricate they may be, doesn’t mean the work is eligible for R&D Tax Credits. Only IT projects that truly advance modern computer technology or break new ground will likely qualify for the scheme. HMRC rules regarding this can be very difficult to navigate, which is why it pays to talk to R&D tax relief specialists such as ourselves.

5. You can’t claim for R&D work that has been completed by a subcontractor. FALSE

Currently, product development that has been outsourced to partners or subcontractors can usually be included in an R&D Tax Credit claim, but it depends on your company’s size. This can be particularly helpful to smaller companies for whom pooling resources and collaborating with others is vitally important. Subcontracting is a rather complicated area, so again we recommend contacting us for the latest advice.

6. R&D tax relief is all about scientists in white lab coats. FALSE

Eligible R&D activities go way beyond that. Yes it can be about pure science-based research and development costs (laboratory costs, scientists’ salaries etc.), but it’s open to every business regardless of sector. From IT to engineering, manufacturing to retail, as long as there has been an element of scientific or technological uncertainty then it’s likely to qualify.

7. Making a claim is fairly quick and easy. FALSE - so don’t go it alone!

This one highly depends on how you go about making your claim. Unfortunately yes, the claims process is not particularly straightforward. The rules are pretty draconian and it’s easy to make incorrect calculations, use the wrong wording in your application or miss something off. The fact-finding part of the process can be also be laborious, depending on the records you’ve kept, and you’re likely to have questions you need answering along the way.

Essentially, if you tackle an R&D Tax Credit claim on your own it’s much more likely that your application could fail, plus it may also trigger an expensive and stressful tax enquiry by HMRC. This is why it’s so important to use the services of R&D tax relief specialists such as ourselves. We know the application process inside out and can guide you through it quickly and painlessly for the best chances of success.

How Tax Cloud UK can help

Tax Cloud UK is a cutting-edge, effective online portal designed to take the pain out of claiming R&D tax relief. Developed by the expert R&D tax team at Myriad Associates, there are separate sections for both businesses and accountants where your own figures can be added to easily see what you could claim.

Tax Cloud are specialists in all aspects of R&D tax relief assistance for UK companies. Made up of skilled accountants and tax experts, we have a proven track record in making successful R&D Tax Credit claims so you can rest assured you won’t miss out. If you think you may be eligible, contact us today on 0207 118 6045 or use our contact page. You could well be surprised at what you can claim.

Barrie Dowsett, ACMA, GCMA
Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud
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Myriad are the creators of Tax Cloud, we help enterprises navigate, apply and secure tax incentives and grants. We specialise in R&D Tax Credits, Creative Tax Reliefs, Innovate UK grants, Horizon Europe grants, and R&D Capital Allowance Claims.

  • Submitting R&D tax claims since 2001
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Meet some of the team behind Tax Cloud

Barrie Dowsett Barrie Dowsett ACMA CGMA Chief Executive Officer
Jillian Chambers Jillian Chambers Technical Analyst/Writer
Lauren Olson Lauren Olson Technical Analyst Manager
Rabia Mohammad Rabia Mohammad Corporate Tax Associate