Innovate

R&D tax reliefs and grants work … will Patent Box work better?

Innovation is one of the best drivers of growth for an owner managed business… and luckily the Government really does get it… offering some bonkersly brilliant and accessible help that actually works for companies like yours…

As a form of Corporate Welfare (which I’m generally against) these innovation-orientated tax breaks and grants rather surprisingly do what they’re supposed to do… boost productivity and create jobs (which I absolutely love)

Innovate UK are busy getting grant money out to innovative firms… and, as the Enterprise Research Centre recently reported, the range of grants available has made a real impact… Over a 13-year period, R&D grants spurred growth worth £43bn to the British economy – more than five times the £8bn invested – and created around 150,000 jobs

… one helluva an ROI

But R&D Tax Reliefs  are doing even better imo… not only does research suggest this tax saving for SMEs is working financially…  Our current evaluation suggests that for each £1 of tax foregone, between £1.53 and £2.35 of R&D expenditure is stimulated… I believe it is changing the mindset of some of the companies applying…  

What started out as an attempt to justify a claim for a extra tax deductions and get money back from HMRC… is morphing into a mindset shift for the companies involved as they start to genuinely put innovation at the heart of what they do…

And I think the Patent Box could take that shift towards innovation to a completely different level…

The tax relief for having a Patent is now so good that companies I tell about it immediately start to think what they are doing or can do that’ll lead to a narrow patent and get them a 10% Corporation Tax rate for a couple of decades…

Changing minds is surely one of the hardest things for a Government to do… but, because of these innovative tax reliefs, minds really are changing when it comes to innovation

Here’s a couple of older blog posts on the subject…

R&D Relief

First Claim

Patent Box

And a great (if slightly technical) site for keeping up to date with any odd updates to the tax reliefs…

Keeping tabs on changes to reliefs

 

 

 

R&D Tax Relief

R&D Tax Relief… use it to raise money?

R&D Tax Relief isn’t just a great way to get HMRC to help fund your Research and Development… you can use it to raise money

Already Claiming?

26% of declines by banks are because of affordability… which means your business plan & forecasts haven’t convinced them that you can afford the borrowing you’ve applied for …

So make sure your plan takes into account that you’ll be paying out less in tax every year you’re doing R&D… or even getting money in from HMRC… (because if you make a loss you can surrender your tax relief for cash from HMRC)

I’ve recently seen business plans from two companies that already claim R&D Relief… and will keep on claiming it year in year out… but their forecasts didn’t take that positive ‘cash-flow’ and profit effect into account…

Not Claimed R&D Tax Relief yet?

Why not? HMRC really are keen for you Owner Managed Businesses to do it.

So much so they’ve recently introduced ‘Advanced Assurance’ ...

If you’ve never claimed R&D Tax Relief before… have Turnover less than £2m… and less than 50 employees… you can go online and see if your R&D plans qualify for this cracking tax break…

… and they will give you a written confirmation that your plans will qualify for up to the next 3 years…

… so when you model your cash flow & profit forecasts you can take account of the reduced tax you’ll pay… or the tax that HMRC could actually end up paying you…

… that will make your plan more realistic… and any funding you’re trying to raise will look more affordable…

DIY

Like me, HMRC are aware that a lot of you have accountants / advisors who aren’t working the R&D wrinkle for you… so they’re happy for you to go DIY… take a look… the Advance Assurance is all done online…

 

 

 

 

 

R&D Tax Credits… they want YOU to claim them

… and you don’t need a white coat… or an R&D department

Research & Development tax credits are the Government’s way of encouraging companies to develop new products and services…

Any company that spends money trying to improve a product or service or even a process through a technological advance where there’s doubt about the project’s success is likely to be eligible.

Is that you?

There’s a real good chance it is, and frankly HMRC are desperate for SMEs like you to claim the tax relief, regardless of the sector you operate in.


Some research suggests the largest number of claimants are in construction, and not high tech companies as you might expect.

I personally know of landscape gardners, web companies and very small manufacturers who have been successful in getting actual cash back from the tax man… and they did it all themselves.

How’s it work?

If you’ve spent money on R&D costs such as wages, raw materials & software then you can deduct up to 225% of these costs from your taxable profits. You can go back up to 3 years, and if that means you’ve overpaid tax then HMRC will send you a cheque.

And they send that cheque real quick.

Who does the claiming
Your accountant should be able to do it for you… but often they won’t, and frankly some don’t know how.

‘It’s not for companies in your sector’
‘It’ll mean masses more paperwork’
‘You have to produce a huge technical report.’
‘It will probably spark a tax investigation from HMRC’

Just some of the things accountants have told companies I know… so I told those companies to call HMRC directly and do it themselves… and they were all successful in getting the reliefs… without their accountant’s help… or fees.

A word on consultants & what will they cost?

There are some very good ‘no gain, no pain’ consultancy firms who will help you claim the tax relief. That means no payment unless they get you some tax money back.

Personally I know Terry Toms at RandDtax.co.uk… and they do a great job… taking 18% of the money recovered

There are others (eg Jumpstart ) and terms differ so it’s worth checking just what you’ll be paying out if successful (& for how long… I’ve heard of one that takes a cut for the next 4 years too… which is a touch too generous!)

Your first Claim

Have a poke around the HMRC website. See if you roughly match the basic criteria. Then give them a call. They really are very friendly and helpful … at least when it comes to R&D tax reliefs!

HMRC’s eligibility criteria can look daunting (there are links below)… but it’s not

Try asking yourself these questions :

Technology : Does my company attempt to develop new technology, with no guarantee of success?

Improvement : Does my company try to make objective, measurable, and significant improvements to the design and implementation of its products, services or processes?

Problem solving  : Does my company use appropriately qualified or experienced internal staff to solve a challenging technical problem (although you can use sub-contractor for parts of the project)?


Here’s the way HMRC frame those questions… this is an email from an HMRC R&D tax relief officer…
1 What is the scientific or technological advance?
Rather than stating the name of the product, process, functionality, etc, being developed you should consider what scientific or technological advance is being sought. This focuses attention on the project’s aim for an advance, which is the key issue in judging whether R&D for tax purposes is being undertaken.
Science does not include work in the arts, humanities and social sciences (including economics).
It’s not enough that a product is commercially innovative. You can’t claim in respect of projects to develop innovative business products or services that don’t incorporate any advance in science or technology.
2 What were the scientific or technological uncertainties involved in the project?
Scientific or technological uncertainty exists when knowledge of whether something is scientifically possible or technologically feasible, or how to achieve it in practice, is not readily available or deducible by a competent professional working in the field.
But uncertainties that can be resolved through relatively brief discussions with peers are routine uncertainties rather than technological uncertainties. Technical problems that have been overcome in previous projects on similar systems are not likely to be technological uncertainties.
You should set out at a high level, in a form understandable to the non-expert, what these uncertainties were and when they started and ended.
3 How and when were the uncertainties actually overcome?
Describe the methods adopted to overcome the uncertainties and the investigations and analysis undertaken. This should not be in great detail, simply sufficient to show that the matter was not straightforward. Describe the successes and failures and the impact of these on the overall project. If the uncertainties were not overcome, explain what happened.
4 Why was the knowledge being sought not readily deducible by a competent professional?
It might be publicly known that others have attempted to resolve the uncertainties and failed, or perhaps that others have resolved the uncertainties but that precisely how it was done is not in the public domain. In either case a valid technological uncertainty can still exist.
Alternatively, if the project is one where there is little public information available, you’ll need to show that the persons leading the R&D project are themselves competent professionals working in the relevant field. This might be done by outlining their relevant background, professional qualifications and recent experience. Then have them explain why they consider the uncertainties are scientific or technological uncertainties rather than routine uncertainties.
Whichever is appropriate set out the details and have evidence available if needed.