Is R & D Tax Relief new?
You’d be excused for thinking it’s very new, which is why so few businesses seem to really know about it, understand it and are claiming it. In actual fact, the Blair government introduced the first R&D Tax Relief scheme in 2000. This was the SME Scheme, the Large company scheme soon followed.
The initial rewards weren’t as good as they are now, the SME scheme allowed for an uplift of 50% of the eligible costs, in 2015 that amount has increased to 130% of the eligible costs; making it probably the most rewarding tax relief for companies.
Who can benefit?
There are only a number of qualifying criteria. The business has to be chargeable to corporation tax, that therefore normally means limited companies, but a limited company operating as part of a partnership has the ability to claim. The business also has to be a going concern; that means it has to be able to continue to trade for the foreseeable future and it shouldn’t be reliant on the cash generated from an R&D Tax Relief claim for its future financial survival.
In a nutshell that is it, beyond that it then depends on what you as a business are doing.
Are there any rules?
There are some considerable guidelines that have been developed by what was formerly known as The Department for Business Innovation and Skills and HM Revenue and Customs obviously oversee the day to day administration of the schemes.
The key requirement is that your business has to have a project that is advancing overall knowledge in a field of Science or Technology and to advance that knowledge you have to overcome scientific or technological uncertainty.
Trying to do demonstrate this is potentially the biggest obstacle to companies claiming, but by using our tried and trusted process we are able to remove this obstacle through collaborative working.
Beyond these rules there is the requirement for the advance to be something that a competent professional operating in the field is unable to easily overcome.
This rule effectively means that you can’t just be advancing your own knowledge to catch up with a competitor. The definition of a competent professional is wide and varied and it is extremely unlikely that one competent professional would be pit against another competent professional when it comes to identifying whether something is R&D.
Then there are rules around the costs that can be included in a claim, there are staff costs (Salary, Employer National Insurance and Employer Pension Contributions), Third Party costs (payments to Subcontractors (SME Scheme only), payments to temporary workers and agency staff and payments to Institutions (Universities, NHS Hospitals etc.)), costs of materials consumed in the R&D Process (this can included prototypes, light, heat and software)
When and How to Prepare?
This is also a key problem when it comes to preparing a successful claim for Tax Relief. For an established business who has been doing R&D as part of its business, you have the ability to go back two financial years to make a claim. That means a company with a 31 December year end could still claim for R&D work that it was performing in January 2013. Can you remember what you were doing in 2013, if you were overcoming uncertainties, can you remember specifics?
If I could go back to January 2013 and sit with the company I would be saying to them document, document, document! Repetitive I know, but it is vitally important for a successful claim for R&D Tax Relief to have documentation that can support the advances being made, the benchmarking against what exists and what a business’ thought processes were.
Having this documentation will be of great advantage to the business.
It’s one of the reasons I like working with some of the businesses up in Tech Hub at Google Campus in Bonhill Street in London, these are normally Start-up businesses just embarking upon their journey to innovation, they are open to understanding what they can do now, they are often pitching for investors, which means they are in the habit of documenting. This new wave of Crowdfunding is almost forcing companies to document what they are doing and the advances they are making because they need this information to be available as a part of their prospectus for potential investors.
The only downside to working with Start-ups is not all of them will make it, it can also be a particularly slow burn from contracting through to performing some work and some of them will probably be grateful of the knowledge but may go off somewhere else to prepare their claim. None of this really bothers me, the important thing for me is that I can be out there educating new start-ups about R&D Tax Relief and the benefit that it can bring to their business now and in the future, it also allows them to show to an investor that they are serious and are particularly business savvy. Who knows, they might even recommend to an investor that they have a chat with me.
The claim itself is submitted to HMRC as part of a company’s CT600 Corporation Tax Return so it is linked to the normal year procedures, but there is nothing stopping a business working on their claim throughout the year, that means things can be prepared when everything is fresh in the mind.
Do you have to collaborate with an accountant?
Everything I do is collaborative, it is vitally important that I establish a good rapport with key stakeholders in the business, a successful claim is dependent upon senior management and technical staff buying into the process, without that collaboration a claim is almost certainly doomed to failure.
The answer to this is very much a case of it depends, if you are an SME and you file your own accounts and tax return then you might not have to involve an accountant, but one thing you will find is that the online tax return that you can prepare on HMRC’s website doesn’t include the boxes relevant for R&D Tax Relief, so you will need access to specialist Tax return production software to be able to file a claim. It might be if you use a bookkeeper to do this already they can still do this. We provide detailed instructions and prepare a draft tax computation to support the filing of the claim so we can always check in with your accountant or bookkeeper.
I am an accountant myself so I know the benefit of having a good relationship with your accountant and bookkeeper, I certainly wouldn’t want to replace them, especially as I don’t offer any of the compliance related services that your accountant would provide.
In fact that’s one of the reasons why a number of accountants across the South-East and further afield refer their clients to us.
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Article and images kindly supplied by Simon Bulteel of Cooden Tax Consulting