Top 4 questions to ask yourself before making an R&D Tax Credit claim
R&D tax claims can be painfully long-winded, not to mention stressful.
If you’re thinking about going ahead with an R&D tax relief claim, you’ll want to make sure everything runs smoothly. After all, with a staggering £7.4 billion claimed in R&D Tax Credits by UK businesses in 2019-2020 alone, can your business afford to miss out?
Question #1: Is my company eligible to claim R&D Tax Credits?
This is actually one of the great things about using the Tax Cloud portal to make your claim: we will check your project and your costs right from the beginning, so you don’t waste time creating a claim that ultimately won’t get off the starting block.
Essentially, the R&D Tax Credits scheme is a generous government incentive allowing UK companies to claim a sizeable tax rebate on innovation costs.
Although the scheme is open to all UK companies in any industry or size, there are a few pieces of basic eligibility criteria that must be met in order to claim R&D Tax Credits:
- Firstly, the company must be UK-registered and subject to Corporation Tax
- Secondly, it must have invested money in eligible research and development work. For example, this could be the development of a new product, service or process, or the appreciable upgrade of an existing one.
As well as your company, your project itself also needs to be eligible for R&D Tax Credits. That means it should have sought an advance in science or technology, that not just benefits the company individually but the wider industry too.
The project outcome should also have not been clear to a competent professional from the start and should solve a technical or scientific uncertainty.
Not sure if your company and/or your project qualifies? Find out more about R&D Tax Credits.
Question #2: Which branch of the R&D tax relief scheme should I use?
"Innovation brings huge benefits to both individual companies and the wider UK economy. With the right approach, R&D will continue to act as the vehicle that brings disruptive new technologies to life." - Barrie Dowsett, CEO, Myriad Associates.
The R&D Tax Credits scheme is divided into two ‘branches’: the SME scheme and RDEC (research and development expenditure credit). The amount your company can claim in relief largely depends on which branch of the scheme you apply under.
As the name suggests, the majority of small and medium-sized enterprises will apply for R&D Tax Credits using the SME scheme. To do so, the company must have fewer than 500 employees and have either an annual turnover of no more than €100 million or a balance sheet under €86 million.
The SME scheme is also more generous than RDEC, with 33p in every £1 of eligible R&D expenditure reclaimable.
RDEC, on the other hand, is for use by larger companies. Under RDEC, your company must employ over 500 people, have an annual turnover of more than €100 million or a balance sheet of at least €86 million.
The RDEC tax credit is worth 13% of your eligible R&D expenditure, so is less generous than the SME branch of the scheme. However, with larger companies tend to come far larger R&D claims which in financial terms can be substantial.
One thing to remember here though: state aid.
If an SME has received any previous state aid then they’ll need to apply for R&D Tax Credits using RDEC - regardless of the company’s size, assets or turnover. Find out about how state aid can affect your R&D tax relief claim.
Question #3: Can I claim R&D Tax Credits even if my company made a loss?
If your company is loss-making, you may decide to carry back the R&D enhanced loss to the prior year, assuming that year was profitable. Alternatively, you can carry it forward for offsetting against future profits. You could also surrender it for group relief. These options all mean the tax benefit could be paid out as cash, or a Corporation Tax saving.
The trick is here in deciding how urgently your business needs the cash. Carrying forward a loss will usually be of higher value in the future. However, in these difficult economic times many companies prefer to have the cash ASAP to help keep them afloat.
Question #4: Why do I need professional advice in building my R&D Tax Credit claim?
The legislation around R&D Tax Credits is complex and updated often. Yes the rewards can be high, but getting it wrong could lead to an HMRC investigation into your wider tax situation. Something you’ll seriously want to avoid.
And how are you supposed to know exactly which of your project costs are definitely eligible and which aren’t? After all, no two R&D projects are exactly the same, so even if you’ve claimed before you still risk leaving money on the table by inadvertently leaving eligible costs out.
This is why many UK companies don’t risk going it alone, but instead partner with a specialist R&D tax consultancy.
Developed by the R&D tax experts at Myriad Associates, Tax Cloud offers a fully-guided, cost-effective online tool that takes you through the steps in making your R&D Tax Credit claim. From entering your costs and writing your R&D technical report to making final checks before submission, it’s the easy way to submit an R&D tax relief claim remotely. And of course, there’s plenty of support and advice from our expert team along the way.
You may be surprised how much your R&D project is worth
“Our business was recently successful on our R&D tax claim with the help of Tax Cloud - seamless process and very professional support from front end BD, tech, tax and payment support. Highly recommend!” - Marcus Yang, Board Member, Profilir.
When you log in to Tax Cloud for the first time, we’ll ask you to add a summary about your company and the R&D project(s) you’ve completed. Your claim will then be approved by us before the next stage ‘unlocks’ and you can carry on. A review is carried out at every step along the way, so you know that by the time your claim reaches HMRC it’s not only totally watertight but fully optimised too.
Why make claiming R&D Tax Credits more difficult than it has to be?
Try the Tax Cloud calculator to see how much your company could claim. Or, if you'd like more information on R&D Tax Credits, simply get in touch by calling us on 020 7360 4437. You’re also welcome to send us a message and we’ll get right back to you.
- Submitting R&D tax claims since 2001
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- Over £100m claimed and counting
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- Member of the Research and Development Consultative (RDCC) committee
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