Tag Archives: Research and Development Tax Credits

Do I qualify for research and development tax credits?

What are research and development tax credits?

Research and development (R&D) tax credits are a government tax incentive for UK companies, especially small and medium sized enterprises (SMEs), designed to encourage investment in innovative products, processes and services.

The government announced in March 2017 at the Spring Budget its commitment to R&D tax incentives going forward, which is particularly helpful and reassuring post Brexit. There will be an additional £4.7 billion invested by 2020-21, which will include improving awareness of the R&D scheme amongst SMEs, as it is widely accepted by HM Revenue and Customs (HMRC) that only a small proportion of SMEs undertaking qualifying R&D have claimed the tax relief. This represents a significant opportunity for SMEs undertaking innovative activities that have yet to claim R&D tax credits.

What is it worth?

R&D tax credits are extremely valuable for SMEs and are worth the equivalent of up to 33% of a company’s R&D expenditure being available as a cash repayment from HMRC or reductions of tax bills.

What type of work qualifies for R&D?

Whilst the Government plans to increase certainty and simplicity around making R&D claims, currently HMRCs R&D conditions are very broad. Therefore, SMEs in most sectors and industries can potentially qualify for R&D tax relief.

If you are not sure if the project you are undertaking is scientifically or technologically feasible or you don’t know how to achieve the desired outcome, it is likely that your project will qualify for R&D tax relief. This is even the case where you have incurred expenditure but your project has not been successful.

The type of project work could include creating new products, services or in-house processes. It could also include significantly changing or adapting your current products, services or processes.

Basically, if you are doing something that your competitors are not doing and would be impressed by, there is a reasonable chance that it could qualify as an R&D activity.

What costs qualify?

The main cost is usually the salaries of people engaged in the R&D activity, including employer’s national insurance and any pension contributions. Other allowable costs typically include consumables, sub-contractor’s costs, software and some utility costs if these can be directly related to the R&D activities.

How we can help?

Here at PM+M we have a wealth of R&D experience and have made hundreds of successful claims on behalf of our clients. Each client and R&D project is unique, so at PM+M we offer a no obligation meeting with a member of our tax team. This allows us to understand your business and the type of project(s) you are working on, with a view to assisting you in starting to identify any qualifying R&D activities.

Below is a summary of our most recent R&D claims made on behalf of our clients:

  • Mattress manufacturer – unique mattress designs improving comfort and reducing heat retention. This claim resulted in a £50,000 tax refund from HMRC.
  • Classic Car Company – the company redesigned a continuation model of a 1950’s racing car which involved a complete overhaul of the internal setup of the car for safety purposes and making it road worthy. The claim resulted in a £60,000 tax refund from HMRC.

If you would like to discuss R&D or if you have questions, please contact Jonathan Cunningham (jonathan.cunningham@pmm.co.uk) or Claire Astley (claire.astley@pmm.co.uk)

Research and Development (R&D) Tax Reliefs

shutterstock_84635077The recent budget saw the Chancellor raise the amount of R&D tax reliefs for small and medium sized companies (i.e. companies with fewer than 500 employees) from 225% to 230% from 1 April 2015.

This means a small or medium sized company incurring £100,000 worth of qualifying R&D expenditure would receive tax relief as normal through their accounts for the £100,000 spent together with an additional £130,000 (£100,000 x 130%) tax deduction via their company tax return.

If the company is loss making, the loss can be surrendered for a cash repayment of up to 33% of the qualifying R&D expenditure which is particularly helpful for the cash flow of a fledgling business.

What projects qualify for R&D?

A common misconception is that only larger companies with specialist R&D departments making groundbreaking leaps in the advancement of science or technology will qualify.

However, at PM+M we have made numerous R&D claims on behalf of our clients, of varying sizes and across a number of business sectors.  The R&D projects we see tend to fall into the following areas:

• The integration of two or more existing components/systems to create new assemblies/systems etc.

• The replacement or substitution of one material for another i.e. replacing metal with a more durable substance.

• Develop a system, process, material or device to be: faster, lighter, stronger, cheaper or more accurate.

Basically, if you are doing something that your competitors are not doing and would be impressed by, there is a reasonable chance that it could qualify as an R&D activity.

What costs qualify?

The main cost is usually the salaries of people engaged in the R&D activity, including employer’s national insurance and any pension contributions. Other allowable costs typically include consumables, sub-contractors costs (with some restrictions), software and some utility costs if these can be directly related to the project.

For more information on R&D, please click the button below for a copy of our helpsheet. Alternatively, you can contact the PM+M tax team on 01254 679131 or by email tax@pmm.co.uk.

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You Don’t Have to Be a Rocket Scientist to Claim Research and Development Tax Credits

Industry reports suggest that many companies are still missing out on the opportunity to claim this valuable tax relief. This is probably because many business owners don’t realise that their company’s activities may qualify.

There’s still a perception that research and development reliefs can only be claimed by companies carrying out purely scientific, laboratory type research. In reality however, this is far from the case.

The definition of research and development is drawn very widely and includes any significant advances in product development, process development or advances in software and systems.

If your business has developed a product or process that would impress your competitors, or if customers come to you to make them something they can’t get anywhere else, there’s a good chance that you’ve been engaged in research and development activity. It can also apply when you’ve been developing your internal systems and processes, as well as your external products.

Even if your company has been unsuccessfully attempting to develop new systems or products, then this can still count as a qualifying activity. The government is actively encouraging research and development in the UK and claims tend to be looked on favourably.

For small and medium sized companies the benefit of making a claim is:

‘That the company receives a 225% tax deduction for the costs of its qualifying research and development activities, including the staff costs of the employees engaged in the R&D.‘

If the company is loss making, or becomes loss making as a result of the research and development claim, it can opt to receive an immediately repayable cash tax credit. This can be an extremely valuable boost to cash flow.

The relief is not as generous for large companies; however, it is still beneficial to make a claim.

My advice if you’re a company director, is that it’s worth thinking about the activities undertaken by your business and considering whether there may be a project that could qualify for this tax relief.

If you think there might be an opportunity, we can help – given our considerable experience of negotiating claims for a wide range of clients. If you want to chat through your position and options, feel free to call me on 01254 604363 or email claire.astley@pmm.co.uk

Claire Astley – Tax Manager, PM+M