Ian Batkin from local R&D Tax specialists Luvo Financial LLP explains:
Research and Development (R&D) Tax Credits is an enhanced Corporation Tax relief, and was introduced for UK SME’s in April 2000, and for Large Companies a couple of years later. R&D Tax Credits are the government’s main way of encouraging Limited Companies to invest in R&D. The scheme provides companies with a means of reducing their corporation tax liability, or where there are no profits, receiving a ‘payable cash credit’ in proportion to their eligible R&D expenditure, all subject to qualifying conditions being met.
In all honesty, when you know what you’re doing, its not that difficult or time consuming to make a claim, and the SME scheme is particularly generous, with the average initial claim providing a £45,000 tax saving (as per HMRC stats). This is in no small part why locally based Luvo Financial, who also trade as R&D:WISE, was formed.
Luvo Financial are active right across the UK, our two partners are both experienced qualified Accountants, have previously worked for a large national R&D Tax Credits specialist for a number of years and have a 100% success record. We help clients to:
- Identify qualifying Research and Development, according to HMRC rules.
- Calculate and maximise qualifying costs.
- Write the Technical Justification Report, which accompanies the qualifying costs as part of the claim submission to HMRC (which is made by the Clients’ Accountants).
Luvo Financial’s contingent fees are one of the most competitive in the sector, and are reimbursed in the unlikely event of the claim being denied by HMRC. There are no charges until an engagement has been agreed and it’s then ‘no-win-no-fee’! We pride ourselves on being a highly professional independent firm who specialise in and focus totally on supporting Accountants and their clients in making R&D Tax Credit claims – it’s what we do!
Luvo Financial have two R&D Tax Credit offerings:
- ‘R&D Tax Full’ which is a fully supported service for larger companies where the tax saving is in excess of £10k in the first two years
- ‘R&D Tax Light’ which is an innovative first-to-market fixed £1,250 fee service for smaller companies, where eligible costs are at least £10k per annum and the resultant tax saving is therefore somewhat less than £10k
R&D Tax Credit claims must be made within two years of the end of the financial year in which qualifying eligible expenditure was incurred. Claiming is relatively easy and straightforward, and typically involves the Accountant re-submitting the CT600 for each of the years being claimed. Qualifying costs can include – internal labour costs, a proportion of sub-contracted R&D work and certain other qualifying costs that were consumed in the R&D activity.
The four main rules that must be considered when assessing eligibility to claim are –
- the claimant must be using science and/or technology
- the claimant must ‘taking the risk’ and ‘standing the cost’ with regard to the R&D being undertaken
- the claimant must be seeking an advance (in general / overall knowledge and capability) of a product, process or service; the outcome can’t be trivial or readily deducible by a so-called ‘competent professional working in the field’
- the claimant must be dealing with / overcoming technological uncertainties
As is often the case when something almost seems ‘too good to be true’, a number of myths and misconceptions surround R&D Tax Credits:
- “Claiming is risky and may lead to broader tax investigations” ~ that’s not the case, particularly if you go about claiming in the right way and, if needs be, use an independent specialist to advise and support you in claiming
- “HMRC do not want claims to succeed so make it hard to qualify” ~ that’s most definitely not the case; HMRC are helpful and supportive in this regard and the legislation is quite clear
- “We need to own the IPR in order to claim” ~ that was the case until 9th December 2009 but from that date this condition no longer applies
- “We are too small to claim” ~ again that’s not the case, as there’s no de-minimis level as far as claims are concerned; the ‘R&D Light’ service now being offered through R&D:WISE should provide further encouragement and an affordable means of claiming to SME’s
- “We are involved in IT (developing websites, games or apps or just programming) so would not qualify” ~ again that’s not likely to be the case, providing you are seeking to make an advance to a product, process or service and are using science and/or technology to do so; lots of companies involved in IT have successfully claimed
So this begs the obvious question – “why are many SME’s under-claiming or indeed not claiming at all?” Usually the critical factor for a SME business is in understanding the scope of what can be claimed, in terms of identifying eligible projects, and then pulling together a ‘Claimable Costs Summary’ and writing an appropriately formatted ‘Technical Justification Report’ to support their claim for R&D Tax Credits. If you excuse the pun, this isn’t ‘rocket science’, but I’m personally very much of the view that it makes very good sense to use an independent specialist to help and provide support with these.
The straightforward answer to the obvious question “So who can claim R&D Tax Credits?” is…. ‘companies who take the risk and use science and/or technology to overcome uncertainty, and develop new or improved products, processes or services’.
In addition to the obvious ones, i.e. companies who either undertake scientific R&D work or have R&D Departments, lots of different companies in lots of different sectors have successfully made R&D Tax Credit claims, including those involved in –
* Manufacturing * Web Design * Metrology * Software Development
* Electrical and Electronics * Test and Measurement Equipment * Aerospace * Assembly and Design of Transducers * Development of e-commerce Systems * Autosport Engineering * Control Panel Systems * Conveyor Systems
* Food and Drinks * Games Development * Systems Integration * Medical Electronics * Suppliers into the Construction Industry * Professional Services * Engineering (process and bespoke, mechanical and electrical)
So a wide-variety of companies can claim R&D Tax Credits, more than most people initially assume; companies who create a new product or improve an existing product, develop a new service or improve an existing service, or design a new business process, such as to improve organisational efficiency. This could therefore be in developing a new handle or a better lock or a more efficient cleaning process or making better pies or bread or a new computer-based system, so long as science or technology is used in an innovative way!
Please contact me by phone or Email if you’d like to find out more – I’d be delighted to answer any further queries that you may have, discuss likely eligibility and then, if appropriate, ‘size the prize’ and support Accountants and their clients with R&D Tax Credit claims. As I noted in the headline to this article, I’m very much of the view that that is the ‘R&D:WISE’ thing to do….
Ian Batkin – Partner, Luvo Financial LLP Tel: 07740 449477 Email: email@example.com