Is your business entitled to claim back 33p for every £1 spent? or £33,000 for every £100,000?Research and Development (R&D) tax credits are often overlooked, and hugely misunderstood. The best way to think about R&D tax credits is this; Companies that spend money developing new products, processes or services (or enhance existing ones) are eligible for R&D tax relief from HMRC. If your business spends money on any project that meets the qualification criteria, you can make a claim. You can claim to receive either a cash payment and/or Corporation tax reduction. The scope of eligibility to claim is extremely broad, and exists to cover every sector. Also if you are making your first claim you can normally claim R&D tax relief/credit for tour last two completed accounting periods. To be eligible you must:
- Be a limited company in the UK that is subject to Corporation Tax
- Have carried out qualifying projects
- Have spent money on qualifying projects
- Previous marketing or branding awareness plans.
- Previous CRM or e-commerce improvement plans.
- Previous improvements to any internal software processes, or hardware improvements.
- Previous or future production improvements.
- Manufacturing improvements or product development.
- Improvements to your supply chain.
- Improvements to your stock control system.
- Improvements to your commercial premises to enable further process improvements.
- Hardware purchases relating to a process or production improvement.
- Innovative methods of construction.
- Innovative ideas on ground works, such as flood control.
- Innovative ideas on environmental improvements.
- Innovative ideas on patient or child care, such as Care Homes and Nurseries.
- Innovative ideas on saving materials and reducing waste.
- Training and development (initial and ongoing)
- Employee retention
- Performance management
- Employee SAT surveys (360 or bespoke)
- Leadership training
Choosing the right Tax Credit SchemeThe two schemes are SME and Large Company SME If you have less than 500 employees and have revenues (turnover) of less than €100 million or €86 million gross assets. The majority of UK businesses including start ups fall under this category. Large Company This is for companies of more than 500 employees and revenues in excess of €100 million, or gross assets in excess of €86 million. SME companies would then qualify for the SME R&D scheme, with large companies able to claim for the Research and Development Expenditure Credit (RDEC).
How much can I claim?This varies depending on your R&D spend but can run into tens of thousands of ££. The calculation and qualification should be carefully managed, but in principle you could claim 33p for every £1 spent.
Do I need to be making a profit?No, profit is not relevant to a successful claim. The relevance is money spent, not money made.
RDEC Scheme for large CompaniesRDEC is for larger companies and allows companies to account for R&D within the Profit and Loss (P&L) account, above profit and before tax. This enables large companies who are loss making to benefit from their development efforts for the first time, by way of an immediate net of tax cash credit, exempt of tax. The RDEC also enhances the companies earnings before interest and tax (EBIT) , therefore ends up being extremely lucrative for larger companies.
The benefits of a specialist firm to claim R&D Tax Credits
- Higher claim returns
- On average using a specialist provider delivers returns 200% higher than a self-submitted claim.
- Our partner provides full indemnity regarding any HMRC claim. If HMRC contest a claim, or investigate it you will have the whole investigation will be handled for you, from start to finish.
- In the unlikely event of a rejected claim, you will be reimbursed for any loss of funds. (To date our partner has never had any claim rejected, and every investigation has been successfully defended).
- Peace of Mind
- Without a full understanding of the technical issues surrounding each project, and qualification criteria as well as the tax complexities involved in a successful HMRC claim, it is not possible to be completely at ease when HMRC decide to carry out a random check or investigate your claim.
- Our partner double checks each claim internally, before instructing an external auditor who then checks each and every detail against the technical and tax criteria.
The process we use
- Engagement – We identify an opportunity to claim for R&D Tax relief
- Check – We perform basic due diligence to ensure that your company is a UK limited company, is not in a distressed state and is solvent.
- Meet – We arrange a 40 minute video call to further qualify and assess the opportunity for you to have a claim
- We send out electronic contracts and NDAs, Terms of business and transparent disclosure terms
- Director validation – we would validate Director information against companycheck.co.uk (it does not matter if the company is making a loss)
- Timeframes and set expectations – clients would be advised of the expected start date and milestones, from the contract signing to first HMRC Tax Credit claim.
- Begin project – Once all is agreed you will have an Account Manager who will manage the whole process for you including regular reviews with you the client and your accountants. This ensures a seamless transition with HMRC
- Ongoing – we work with you (and your accountants) to help setup your project tracking and accounting systems for the future. This will enable us to manage your projects claims more effectively moving forward.
Some of the most common queries raised:
- We don’t think that we would qualify for R&D tax credits.
- That’s okay, we can help you determine the likelihood of a claim. We will do some initial fact finding to see if you could qualify, followed by a short video call. If we then think that you have a claim, we can start the process, if not we will tell you at this stage. (Remember we do not charge you upfront. If we are successful in a claim, we charge a commission of the claim when it is received)
- We don’t want to pay for something we may not be able to claim for.
- We totally understand and only take our commission when HMRC pay for the claim. We do not take any money for an unsuccessful claim.
- We do our own claims for R&D Tax credit.
- We know that many people do manage their own claims. However often we find that because our partner are tax specialists the claims are often lower than they should be. Also if you manage your own claims, you could also be accountable if an incorrect claim is submitted, and could face investigation from HMRC. This could also lead to substantial fines and refunds if found to be incorrect. Using a tax claims specialist you will be indemnified and they will deal with your whole claim for you.
- Our Accountant processes our claims for us.
- This is quite common, however we often find that whilst your normal business Accountants are excellent at what they do. they often do not have high calibre engineering resource available. To maximise the claim you need engineers who can focus on the projects undertaken, and provide the innovation report in a structure that can then be discussed with the tax specialist. Our experience is that accountants will achieve less than 50% of the claim due as a result of their necessity to be conservative or due to the lack of specialist R&D tax support support. As a consequence your claims could be lower than expected.
- We don’t want to claim as we already owe money to HMRC.
- This is fine, you are still entitled to claim, HMRC will normally just deduct the claim value from any monies owed to them. Remember you will still have to pay any Corporation tax due at some stage, but you will not always be able to claim for R&D tax relief.
- We are in the startup phase and haven’t sold anything yet.
- We understand, however a successful claim is about your spend on innovation, and improvements to your business. So if you haven’t sold anything that is absolutely fine.
- We don’t think that we would qualify for R&D tax credits.
- Higher claim returns
Claiming for R&D tax relief is a specialised task, mistakes can be costly in either under claiming or in the event of an over claim you could be liable to significant fines and the disruption of an investigation from HMRC.
As a consequence, at Semantic we only recommend our clients to using a specialist provider whom we work closely with. At Semantic we help by providing independent guidance in a flexible, affordable way, payable by the hour, or flexible contract terms.
If you would like help with your R&D Tax credit claims contact us today.
We will be delighted to arrange a FREE initial consultation to discuss your situation, and arrange the next steps to help you on your journey
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