For many entrepreneurs and executives, the idea of spending money on Research and Development (R&D) sits fairly low on their list of priorities. Against the backdrop of the very immediate and very real day-to-day concerns of running a successful business, investing money in the future can pale in comparison.
But even the most risk-averse will concede that taking the time to research and develop new technologies can in fact boost the bottom line. And the good news is your business can be rewarded for doing just that via a reduction to your tax liabilities or with a welcome cash sum from HMRC.
This reward comes through a scheme called R&D Tax Credits. In this blog post we’ll discuss what they are, how they work, and whether or not your business is eligible.
What are R&D Tax Credits?
Put simply, R&D Tax Credits are a tax break introduced by the UK Government back in 2000, with the aim of encouraging companies to spend more money on research and development in the UK.
There was – and still is – a belief that such an investment is to the benefit of the wider UK economy. By applying for R&D Tax Credits, you could benefit from a reduction in your tax bill, or even receive cash from HMRC direct to your business bank account.
How do they work?
One of the most attractive aspects to the R&D Tax Credit is that it doesn’t matter if your business is turning a profit or not. And you can even claim up to two financial years historically if, in that time, you had invested in new manufacturing processes, or the development of new software of technology.
The R&D Tax Credit works by reducing your taxable profit, which subsequently reduces your Corporation Tax liability.
Or, if you’re not profitable, or you owe a small amount of Corporation Tax (or none at all) you will instead receive a cash sum in place of the tax relief. You can then use this money to reinvest in your business and pursue further innovation and development.
Are you eligible?
If you’re developing a new product or service, or you’re improving an old one because it just wasn’t working right, then you may be eligible for the R&D Tax Credit.
Unsurprisingly the legislation underpinning HMRC’s requirements is both broad and incredibly detailed. However, it can be broken down into the following 5 key areas:
- Your company is attempting to ‘resolve scientific or technological uncertainties’.
- If you are advancing the field of science and technology.
- There is naturally a level of uncertainty about the outcome.
- You’re not sure your project is scientifically or technologically possible.
- Developing or improving products and services, or improving efficiencies.
The good news here is that the research and development you undertake doesn’t have to have been successful in order to qualify for the tax credit. And you can include work completed on behalf of a client, as well as your own projects.
If the above applies to your business, then you may already be carrying out activity that qualifies for R&D Tax Credits.
What can you claim?
There’s a range of areas which qualify as R&D expenditure, including:
- Staff, including salaries, employer’s NIC and pension contributions.
- Subcontractors and freelancers.
- Certain types of software.
- Materials and consumables.
If you’re unsure if what you’re doing qualifies, we can discuss your expenditure and let you know what we think you are able to claim.
How much can you save?
Via R&D Tax Credits, you could save up to a third of every £1 you have spent on qualifying costs.
The first thing you need to ask is, which category do you fall into?
- Are you a Small or Medium-sized Enterprise (SME)?
An SME is defined as having less than 500 members of staff and less than £100 million turnover or £86 million net assets.
This will cover most companies, including start-ups. SME’s can claim back up to 33p for every pound spent on R&D. If your business is loss making it is possible to receive a cash payment from HMRC.
- Or are you a Large Company?
A Large Company is defined as having more than 500 members of staff and more than £100 million turnover or £86 million net assets.
Claims are made through a different scheme called the R&D Expenditure Credit scheme (RDEC). Large Companies can claim up to 8.8p for every £1 spent on R&D.
Here’s how we work
Our service is entirely end-to-end, and we even deal with HMRC on your behalf. In fact, there are only 4 short and simple steps between you and a successful claim:
- Coffee (or tea) – We’ll sit down together and discuss you and your business, over the hot beverage of your choice.
- Consultation – Next, we review your accounts and expenses, and discuss your current R&D projects.
- Claim production – Once we’re convinced you have a solid claim, we’ll produce your R&D report and claim, ready for your approval.
- HMRC – Finally, we deal directly with HMRC or your behalf, handling everything from getting your claim approved to chasing the money into your bank account.
We charge a fixed fee of 20% of the tax saving, and if the claim is unsuccessful or you do not qualify, you’ll have absolutely nothing to pay.
Since we began completing R&D Tax Credit claims, we’ve yet to have one rejected, so we’re very confident that we can help you receive a successful claim and put some money back into your business. Once the claim has been approved, the funds should be in your account in 4-6 weeks.
Ready to Claim? Ten Forward Can Help
You can of course claim R&D Tax Credits yourself, but it’s a lot of time spent with paperwork – time better spent running your business!
The reason we have a 100% success rate when it comes to R&D Tax Credits is because we understand the scheme inside and out. We know how to optimise and maximise a claim, and minimise the chances of an enquiry from HMRC.
We’ve claimed thousands of pounds back for our clients, and with no upfront costs, and our no win, no fee approach, now’s the time to find out more about R&D Tax Credits.