R&D Tax Credits: Busting the myths and the mystery
Most recent government statistics show that in the year ending March 2020, £7.4 billion was claimed in R&D Tax Credits. Is your company missing out?
Keep one eye on the here and now, and the other eye on the future. That’s pretty much the motto of any company from the smallest start-ups to the largest conglomerates. Or at least it ought to be.
But investing in the future is often expensive. Developing new products and services, modifying infrastructure and ploughing money into growth is not for the fainthearted.
The UK government also strongly encourages R&D investment as a way of driving economic growth in the wider economy. That’s why back in the year 2000 the R&D Tax Credits scheme was launched, designed to encourage company innovation by reimbursing up to 33% of eligible costs. The award is given either as a reduction in a company’s Corporation Tax liability, or - for loss-making companies - a cash lump sum. It’s a generous tax incentive indeed with similar schemes available for companies in Ireland and France to name just two.
The issue comes with claiming. Unfortunately, HMRC doesn’t automatically apply R&D Tax Credits, and the process of applying is far from straightforward. That’s because the onus is on companies to not only know exactly which costs can be claimed for, but also how to complete the technical report in just the right way for success. It’s a very complex area of tax indeed, so it’s not surprising many people are put off - which is where the Tax Cloud portal comes in. More on that later.
So why else are companies reluctant to claim what can easily be tens of thousands of pounds of extra funding? There are several common myths that really need busting here.
Myth 1: Tax credits are for big, profitable companies
R&D Tax Credits are intended for businesses of all sizes and in any industry (not just science and tech firms). However, the scheme is divided into two branches: the SME scheme and RDEC.
The SME ‘branch’ is more generous, however RDEC claims tend to be much larger. With this in mind it’s well worth familiarising yourself with the differences between the SME scheme and RDEC.
Myth 2: R&D Tax Credits are for revolutionary breakthroughs
The R&D Tax Credits program is based on effort 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. So it could be simply that the company has taken something that already exists and substantially improved it.
Essentially, as long as some scientific and/or technological research has been undertaken then the door to R&D Tax Credits is open.
Myth 3: You can only claim R&D Tax Credits if the R&D project was a success
If the outcome of technological or scientific research was obvious from the start then there’d be no need for R&D work in the first place! Therefore, even if the project failed, or was even abandoned altogether, R&D Tax Credits can still be awarded. It’s about the journey of the R&D process and the experimentation involved - not the end result.
Myth 4: You can only claim R&D Tax Credits when you submit your yearly accounts
R&D Tax Credits can certainly be claimed once you’ve closed your accounts for the year. However (and many first-time claimants don’t realise this) you can actually claim for previous financial periods too, up to two years prior.
This is why it’s well worth planning for your R&D tax claim from the outset, keeping accurate records along the way.
Myth 5: There’s a minimum amount you have to spend on R&D before you can claim R&D Tax Credits
This is a really common one, probably because prior to 2012 this actually was the case. Back then, the minimum claim amount was £10,000. However, since the scheme was changed a decade ago no such minimum amount exists.
The other thing that often throws confusion into the mix is the PAYE cap that limits the amount of credit claimable to 300% of your entire PAYE/NIC liabilities. The aim was to help tackle fraudulent claims.
The cap kicked in during April 2021. However, in reality it only really affects a relatively small number of companies that have been set up solely for R&D work, or who subcontract a lot of work out.
Myth 6: Processing times are too slow
Again, this is a pretty common one. Back in the day things may have been slower, but once an application has been accepted you can usually expect the credit payment within around 28 days. This highlights again the importance of using a professional claims service like Tax Cloud to make your claim watertight.
Bear in mind however that it can easily take 10 days for the money to hit your account even after HMRC has released it. So around 40 days in total is perhaps more accurate, assuming everything goes well.
Give your R&D Tax Credits claim the best chances of success
"Excellent platform and service from the team at Tax Cloud. C-Centric is happy to recommend." - Tim Pottinger, Commercial Director, C-Centric Limited.
Although it’s tempting to go it alone and complete a DIY claim, the fact is you’re unlikely to be successful. Adding in costs that simply aren’t eligible can easily lead to an HMRC investigation into your wider tax affairs. But by being too cautious and inadvertently leaving off certain costs, you’re needlessly restricting your award and missing out on money that’s rightfully yours.
The Tax Cloud portal for businesses - developed by the R&D funding experts at Myriad Associates - is simple and quick to use. Allowing you to put together your R&D tax relief claim online and accessible 24/7, simply follow the steps with the help and support of our team.
Plus, our commission is just 5% on your first £200,000 then 2.5% after that, which is highly competitive indeed. We don’t even take our fees until your claim is successful so you’ve really got nothing to lose.
- Submitting R&D tax claims since 2001
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