If you’re company has been “Funded”, and in the last 36 months you have spent some of that funding on Research or Development make sure you talk to us about Research and Development Tax Credits before it’s too late! Many thousands of Small & Medium-sized Entities (SMEs) and Start-ups are throwing away £’000s by not investigating their potential to claim.
It doesn’t matter what the source of the “funding”, it could be from a start-up loans company (Virgin Start Ups, The Princes Trust on a National Level or Let’s Do Business on a regional level in the South-East or Finance for Enterprise in Yorkshire & Humberside, indeed any one of a multitude of other organisations), a bank loan, a Smart Grant from Innovate, an Enterprise Grant from a local council or Local Enterprise Partnership or a Crowdfunding campaign (Seedrs, CrowdCube, Crowdfunder, KickStarter, IndieGoGo, Zopa, Funding Circle or similar), it’s what you do with the funding that counts.
Different types of funding and the company’s financial position will determine how much Research and Development Tax Relief you will be able to claim. It ranges from 8.8% of the spend under a claim for Research and Development Expenditure Credit all the way up to 33.35% for a claim for R&D Tax Credits.
Here are just a few scenarios:-
1 – A company took out a Start-up loan of £25k from Let’s Do Business, £20k spent on salaries for staff engaged completely in Research and Development on an eligible project, the company has no income and has spent the other £5k on marketing. The company can claim R&D Tax Credits of £6,670 (a whopping 33.35% of its original spend), this is cash that the government will pay to you if you surrender the loss brought about by the companies R&D Spend.
2 – An established SME company took out a bank loan worth £25k, the company spent £20k of the loan on an external contractor to perform some work on an eligible R&D Project. The company made taxable profits of £50k in the financial year and would have had a tax bill of £10k, the company claims for R&D Tax Relief on its £20k spend, it reduces its taxable profits to £33,100 and therefore has a reduced tax bill of £6,620, a tax saving of £3,380 (a generous 16.9% of their original spend).
3 – A tech start-up company received a £25k proof of concept SMART Grant from Innovate UK, it spent £20k of that money on salaries, the other £5k covers office admin costs, which aren’t eligible for R&D Tax Relief. The company makes a loss for tax of £20k. The company is able to claim for the Research and Development Expenditure Credit, which generates an immediate payment from HMRC of £1,738 (8.69% of the original spend) and will generate a further £462 when the company becomes profitable (a total of 11%). The reason for the significant reduction in Tax Relief for a grant from Innovate is that the grant is EU State Aid. An eligible project in receipt of another form of EU State Aid or de minimis aid (Growth Accelerator, Manufacturing Advisory Service) will prevent a claim for that project under the more generous SME Scheme for R&D Tax Relief, which is also an EU State Aid. The project will be eligible for the large company scheme or RDEC as it is now known.
4 – An established business raises £25k through a Kickstarter campaign, it spends £20k of the money on Materials and Wages and Salaries to develop a series of prototypes of its new tech which it gives away to some of it funders as part of the reward for Beta-testing, it spends another £5k on marketing activity. The £20k spend is eligible, the company has no other income or expense. The Kickstarter funding is treated as income and therefore the company has “broken even”. The company can claim £3,770 as R&D Tax Credits by surrendering its loss for tax of £26,000 as a result of the claim for R&D Tax Relief.
5 – A tech start-up lists on Seedr for a series A round of funding, they raise £25k and spend £20k on salaries to develop their product. The company has income from initial sales and has a taxable profit of £30k, the company would have to pay tax of £6k, but it claims for R&D Tax Relief on the R&D Spend and reduces its taxable profit to £4k and a tax liability of just £800, a tax saving of £5,200 (equivalent to a large 26% of the initial spend).
This is just a sample of the potential scenarios for a one off project, if you have a number of projects all of these reliefs can be used together depending on the nature of the project, the funding and the companies taxable position at the end of the year.
So if you’ve been funded don’t delay, pick up the phone and speak to one of our specialists about R&D Tax Relief today. The clock is already ticking!
We offer a free no obligation consultation to determine whether any projects might be eligible, to explain our services in more detail and discover how our expertise can best serve your business. Please call us on 01424 225345 and ask to speak to Simon or e-mail firstname.lastname@example.org