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.