R&D tax: Removing the seed of doubt…

Despite R&D tax credits being around for almost 20 years, we find that there are still a number of myths and questions that crop up time and time again when talking to clients.

In this blog, we take a look at some of the most common myths surrounding R&D tax to clarify the facts and encourage companies to overcome their doubts and consider whether they could be eligible to make a claim.

Lack of complete records

“We aren’t eligible to claim because we don’t complete timesheets”

Contrary to the above statement, many companies claiming R&D tax credits quantify claims based on percentages of staff involved in R&D projects during the course of a year.

One of HMRC’s requirements for organisations making a claim based on percentages (as opposed to using timesheet systems) is that R&D staff percentages should be estimated / quantified for each project considered to qualify for the tax relief.

This provides HMRC with a greater degree of accuracy when reviewing R&D projects and identifying the corresponding cost allocation.

OUR TIP: Putting records in place will result in more accurate and robust claims, minimising the risk of rejection from HMRC.

 

Poor financial performance

“We aren’t eligible to claim because we didn’t pay corporation tax”

Regardless of whether a company makes a £200,000 trading profit or a £200,000 trading loss, the company can still benefit from submitting an R&D tax credit claim.

Profitable companies claiming R&D tax credits can benefit from a corporation tax saving or a reduction in corporation tax payable at a current saving of circa 24.7%.

Loss making companies claiming R&D tax credits can benefit by carrying the trading losses created via the R&D claim forward to offset against future trading profits.

Alternatively (and arguably the most popular option), is that losses can be surrendered to HMRC in return for a cash repayment providing a benefit of between 14.5% – 33.35%.

With ‘cash being king’, this option can offer significant benefits to loss making organisations and can provide valuable funds to be re-invested into the company.

OUR TIP: Reviewing your R&D claim yearly can help cash flow and budgeting for future development projects.

 

Grant funded projects

“We aren’t eligible to claim because we received grant funding for our development project”

There are three different ways in which R&D tax claims can be structured and submitted, depending on the level and type of funding that the R&D project has received.

To dispel the myth, these are outlined below:

– If the project has received notified state aid – all of that project’s expenditure can be claimed under the large company “RDEC” scheme

– If the project has received funding (not notified state aid) – part of the project’s expenditure can be claimed under the SME scheme (non-funded costs) whilst the funded / subsidised part of the project is claimable under the RDEC scheme

– If the project has been funded internally – all of that project’s expenditure can be claimed under the SME scheme (unless threshold for a large company is breached)

OUR TIP: Before obtaining any funding for a development project, make sure you speak to us to see how this will impact on any future R&D tax claims.

For more information about anything in the above article, please get in touch using the button below.
Jon Connor
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