The government introduced the R&D Tax Credit scheme almost 19 years ago, but with recent government statistics showing that just 5% of eligible businesses are actually claiming them, there would seem a huge lack of awareness and understanding amongst businesses as to what qualifies as R&D. With this in mind, the team at Luvo Financial highlight some top tips to R&D tax credits to help maximise the benefits from claiming.
“Given that the average R&D Tax Credit claim is between £50,000 and £60,000, innovative businesses are missing out on financial recognition of their pioneering work, as well as a cash injection for the business,” says Ian Batkin, a partner at Luvo.
“Misunderstanding amongst small and medium size businesses in the manufacturing sector about the R&D Credit scheme and what activities qualify for financial support, and importantly, whether their own product or service is likely to be eligible, continues to be is widespread, with the majority believing that R&D tax credit is only available to ‘lab coat and goggles’ businesses, which simply isn’t the case.
“Luvo is working hard to improve understanding and awareness amongst all businesses, so that those that are genuinely entitled to R&D Tax Credits can benefit from the scheme.”
To help, Luvo has compiled its Top Tips to R&D Tax Credits:
- Don’t assume that you aren’t eligible to claim ~ all types and sizes of companies, in a range of sectors have successfully claimed R&D Tax Credits over the past 18 years, and it’s certainly not just companies who have scientists working in laboratories who are eligible
- Know the type of projects that have and will qualify for and can be claimed under R&D Tax Credits ~ you are probably able to claim for more than you think, and even R&D projects that have been ended will qualify; it’s almost as bad not to claim as much as you are entitled to, as it is not to claim at all.
- Ensure you claim for all eligible costs ~ there are seven categories of P&L costs that can be claimed for, some of which can be claimed for at 100% of the cost incurred. For example, you can claim for a specialist R&D Project team, including for example your R&D Manager or CAD Engineer. It is also possible to claim up to 65% of the costs of sub-contractors and externally provided workers or consultants that have been involved in your R&D work or project, so always remember to include these.
- Don’t claim for costs that aren’t eligible – it’s an absolute ‘no-no’, from HMRC’s perspective, if you try to include costs that aren’t eligible to be claimed, so take care to only include costs that will qualify to avoid any problems with HMRC as this could slow down or compromise your claim.
- Be aware of how far back you can go ~ under the so-called ‘two year rule’ you can only amend Corporation Tax Returns and in turn retrospectively claim R&D Tax Credits, within two years of an Accounting Period End (APE), or ‘year end’;so a company with an APE of say 31/12 can currently claim for the year end 31/12/16 and 31/12/17, but lose the ability to claim for the earlier of those two years after 31/12/18.
- HMRC typically settle claims in no more than 4 to 6 weeks ~ so the sooner you file the claim, the sooner you receive the tax back from HMRC, which will make the payment directly into your bank account. There’s even a mechanism that allows loss-making companies to claim back tax via Payable Cash Credits.
- Engage an independent R&D Tax Specialist ~ to support you in assessing eligibility and maximising claims, there is real benefit in working with a firm that specialists in R&D Tax and has a track record of successful claims for clients. Such firms will properly understand the legislation and HMRC requirements from R&D Tax Credits claims so will add value and maximise the success of your claim.
R&D Tax Credits are a valuable government tax incentive for limited companies who invest time and money into developing new products, processes and services, or significantly enhancing existing ones.
Luvo Financial works with businesses and independent accountancy practices across the Midlands and elsewhere in the UK. Founded in 2015, Luvo’s Partners Ian Batkin and Vicki White are both qualified accountants. Read our ‘More than lab coats’ blog for more information about what qualifies for R&D Tax Credits, and contact us to speak to one of Luvo’s partners and book a free, no-obligation, one-hour consultation