Should I be claiming Research & Development Tax Relief?
It’s a question a lot of business owners ask their accountant. The typical answer is probably
“No, you’re not doing anything that qualifies!”
If you’re lucky you might get a slightly more responsive answer from your accountant
“I don’t know, it’s not something we’ve considered before, it’s not an area we cover, why don’t you go and speak to an expert.”
Or if you’re really lucky you might hear
“I don’t know, but if you’d like to talk to an expert, we’ve worked with a company before on a few clients, they’ll be able to tell you and if you have been, there’ll work with us to submit a claim for you.”
Is R&D Tax Relief something new?
No, it’s been around for 20 years. R&D Tax Relief or R&D Tax Credits are still massively under claimed by businesses. That’s predominantly because most accountants don’t understand it and aren’t proactive in talking to their clients about it.
What sort of work can you claim for?
Well that’s the million-dollar question. In essence, if you’ve been developing a new product, new piece of machinery or manufacturing process, or a new recipe, then you really should be considering a claim. If you’re thinking about patenting your invention then you definitely should be thinking about claiming and looking into Patent Box as another way of reducing your tax bill.
However, you also don’t have to be doing something new, you could be significantly improving something that already exists. You also don’t have to succeed a failed project is perhaps the best project for an R&D Tax Relief claim.
If your work has revolved around seeking an advance in science or technology and you’ve had to overcome scientific or technological challenges to do that then you should definitely consider a claim. If your project failed because the technological or scientific challenge was too great then again you should be claiming.
What constitutes an “Expert”?
If you are going to work with an “expert”, work with someone who’s prepared to work with your accountant, not against them. You should be finding out about their experience, the number of claims they have submitted, the number of years they have been preparing claims, experience of your industry, the number of claims they have had rejected, the number of enquiries HMRC have opened into their claims and the amount of tax relief those enquiries have removed from the claim.
You also shouldn’t feel like you are doing all of the work, unless you’ve signed up to a do it yourself claims company. You’ll have to do some work, both to provide the evidence of the scientific & technical challenges that you’ve faced and in providing some of the financial information to support your claim.
Is it worth it?
The average claim for a small business is around £50,000, but perhaps a more realistic target for a small business is the median claim of just under £20,000, but it really depends how much money you’ve spent. Some small businesses have had claims over £1m, but their R&D project will probably have cost them at least £4m.