Recently Incisive Accountants have become aware of so called ‘technical experts’ taking advantage of businesses in regards to R&D Tax Credits. With this article we hope to clarify R&D Tax Credits, who can claim for them and how we can assist with this process.
What are R&D Tax Credits?
You can think of R&D Tax Credits as a Government reward for innovation.
Substantial tax relief can be claimed by those that invest in advancements in science and technology, even if the projects are unsuccessful.
What projects count as R&D?
In order to claim tax credits for R&D projects you will need to be able to prove the following:
- Your project is looking to advance science and technology.
The aim must be to advance the field as a whole, not just your own business. This could be creating a new product or service or modifying an existing one. This is also true for processes but does not include work on purely theoretical work such as math.
- Your project had to overcome uncertainty.
You need to be researching or developing something that is new and unknown to both your business and experts in the field. This can be achieved by working on something that may be scientifically or technologically impossible or on something that is unknown in practice.
- How your business overcame this uncertainty.
You need to be able to show the failures and successes in your research, testing and analysis in order to show development.
- That a professional in the field could not have made your advancement with ease.
This can be achieved by being transparent with previous failed attempts or by your professional explaining the ambiguity involved.
SME R&D Relief or R&D Expenditure Credit?
There are two types of R&D tax relief:
- Small and medium sized enterprises research and development relief.
For businesses with less that 500 staff and a turnover of less than 100 million Euros.
This allows companies to claim a total of 230% deduction by deducting an extra 130% of their qualifying costs. If your company is making a loss you can also claim up to 14.5% of the surrenderable loss.
- Research and development expenditure credit.
For large companies and SME’s that have been subcontracted to do work by a large company.
Those qualifying can claim up to 11% of their R&D expenditure.
What Costs can be Claimed.
The following costs can be claimed:
- Staff costs.
This includes salaries, wages, pension contributions, NI contributions and bonuses.
- Utility Costs.
This does not include fixed assets such as buildings and land but does include electricity, heating and water if work has been performed in-house.
- Consumables materials.
This includes all materials consumed or or modified during R&D and to create prototypes but does not include materials used for your completed project.
- Software costs.
This includes specialist software used during research and development. A proportion of software used for both R&D and other functions can also be claimed such as project management software.
- Subcontractor or external worker costs.
Any payments to third parties regarding R&D work can be claimed. This includes subcontractors and specialist short-term assistance.
- Payments to trial volunteers.
This includes those involved in clinical medical trials and those testing products, services or processes.
Although the above list covers a substantial proportion of costs there are a variety of costs that cannot be claimed:
- Computer running costs
- Computer and capital equipment costs
- Telephone and internet costs
- Server costs
- Postage, stationary or freight costs
- Rent and business rates
- Travel and accommodation costs
- Recruitment fees
- Professional fees such as patent attorney fees.
How to Claim.
Your claim must be made during you corporation tax return within two years of the accounting year that the expenditure was made.
It is good form to include a cover letter with your tax return explaining your project, why you think it is worthy of Tax Credit and explanation of your calculations. The HMRC employ specialists who determine whether your project is suitable.
What can we do for you?
Here at Incisive Accounting we are proud to give support to those leading the way in science and technology. e can complete your R&D tax claim along with the rest of your tax return for a fixed fee. This fee will be calculated not by the amount of your claim but by the amount of work it will take to complete.
Beware of ‘technical expert consultants'
Insure that those you trust with your R&D tax claim are in fact qualified in chartered accountancy and in turn equipped to deal with HMRC enquiries and your full tax return. There are a number of chartered accountants that are experienced and can offer your company full support in these matters. You do not need a specialist consultant.