Research and Development (R&D) Tax Credit Specialists

The UK had and to a certain extent still has a long-term problem with its investment in Research and Development. Shortly after coming to power the Labour government and chancellor Gordon Brown identified that between 1981 and 1999 the UK’s investment as a proportion of Gross Domestic Product actually fell. They sought to create a tax incentive capable of boosting the country’s investment in R&D. R&D Tax Relief was born in 2000 initially for Small and Medium-Sized Entities and one of its central pillars was the ability for a loss-making company to surrender its tax losses for a cash-boosting Research and Development Tax Credit.

Profitable companies would be able to claim Tax Relief against their profits. In 2001 the Large Scheme (which has been replaced by the Research and Development Expenditure Credit) became legislation. Whilst the Tax Relief has gone someway to boosting the percentage of R&D spend to GDP, it remains lower than most other countries in the OECD and in 2019 was around 2/3rds of the OECD average and around 19% below the European Union average.

Your accountant is a bit like your GP, they are in General Practice, they know a little about a lot. R&D Tax Relief is a very niche piece of corporation tax and requires not only knowledge of the accounting and taxation rules but also significant technical knowledge of the industry in which you operate to determine whether the company’s projects meet the criteria for a claim. You wouldn’t go to your GP for open heart surgery would you?

There are only 3 qualifying criteria:

1. You are a limited company
2. You are a going concern
3. You have undertaken a project that seeks to advance science or technology through the resolution of scientific or technological uncertainty that can’t be resolved by a competent professional operating in the field.

You claim through your company’s Corporation Tax Return so it is a retrospective claim, that means that you can claim for the current financial period, your last completed financial year and the year before that. The filing deadline for your tax return is the second anniversary of the end of the financial reporting period. You have the first year to prepare and submit your tax return and then a second year to amend it.However, from April 2023, companies will need to advise HMRC that they intend to prepare a claim within 6 months of the end of the financial year.

No it’s not, we’ve provided information about 6 of the major industries where R&D is generally prevalent, but the legislation is industry agnostic, that means the only important elements really are the 3 qualifying criteria mentioned above.

It might sound like it, but there is an exception to every rule and this is it. If you are uncertain you can visit HMRC’s only guidelines.

We generally reckon it takes us 6 to 8 weeks from an initial conversation with you through contracting, information gathering, writing and then communicating the figures back to you for approval and then on to your accountant for submission. It then generally takes HMRC 30 -50 days to process and pay out the claim, but it can take longer at certain times of the year and should HMRC open an enquiry it will take even longer. However with a highly motivated business and a looming deadline, we have been known to be able to complete a claim within 1-2 weeks.

If you are still within time to submit an amended claim having a second pair of eyes to look over your claim can’t do any harm, can it? If you’ve overclaimed you’ll have the peace of mind that you have got it right and if you’ve underclaimed or not claimed at all, you may still be due a substantial refund.

There are several elements to the R&D Tax Credit scheme, the most beneficial for start-ups is that it allows a company making a tax loss to surrender the lower of the tax loss and the enhanced R&D expenditure for a payable tax credit. The payable tax credit is equivalent to a headline rate of 33.35% of the eligible spend! If your company is in the “twilight zone”, the lowest the tax credit is worth is 18.85% of the eligible spend for a company that breaks even prior to claiming the tax credit.

We call it the “twilight zone” because of a quirk in the legislation, which means that the headline rates of tax savings of 24.7% for a profitable company and 33.35% for a loss-making company are reduced, down to a minimum of 18.85% of your eligible spend! If your profit before claiming R&D Tax Credits is less than 130% of your eligible spend or your tax loss is less than your eligible spend, you’ll find yourself in the “twilight zone”.

Yes, it will, the R&D Tax Credit is cost-based and for a majority of companies, the largest cost is staff, that includes directors. Even if you don’t pay yourself a salary, we can still claim for other staff, agency workers and subcontractors engaged in the UK.