Can I claim Research & Development (R&D) Tax Credits?
Firstly, why would I want to?
If your company is involved in research and development work, claiming R&D Tax Credits can save you a lot of money off your tax bills.
To give you an example, for every £100 you would normally spend on Corporation Tax, you might be able to deduct £46 from that bill, provided that you qualified (and claimed for) the R&D Tax Credits.
HMRC calls this type of R&D Tax Credits “Enhanced Deduction”. You’d need to be in profit because that’s when a company’s requirement to pay Corporation Tax kicks in.
On the other hand, if your company has no taxable profits, and there’s no such prospect in the short term, there’s another possible route to qualifying and it’s based on your company’s overall expenditure on R&D projects. For every £100 of “qualifying expenditure” incurred by your company, you could be eligible for a tax refund from HMRC of £14.50. HMRC calls this “Repayable Tax Credit”.
Eligibility to claim R&D Tax Credits is dependent on the following criteria too:
Are you a company? Because only companies can claim.
If you are not trading as a company but are undertaking research which might be eligible for R&D Tax Credits, it’s a good idea to consider whether it might be beneficial to change the trading status of your business (e.g. from freelancer/sole trader to limited company etc). You can consult us for advice or practical help with that.
Your R&D expenditure must be on a “project” (i.e. not part of your general, normal business activities).
One unsuccessful claimant was a computer gaming company that wanted to claim R&D Tax Credits on its software development for a number of games. However, as this was what they did in the normal, routine course of their trade, HMRC found it wasn’t eligible for relief.
Your project must seek to achieve an advance in science or technology that resolves a “technologic or scientific uncertainty”.
What is an “uncertainty”? In this context it’s where experts (i.e. competent, experienced and qualified professionals) in a particular field have not yet documented a solution. It could be about researching the interaction of two existing software programmes which have not previously been used together, then documenting how to resolve any incompatibility issues that occurred.
Other indicators are when there is a rise in the following activities within your company; engineering, biotech, physics, chemistry and computer science, or if your company is bringing together experts from different fields to resolve your tech or scientific “uncertainty”.
So it’s only “tech” companies that can claim?
No. Other industries may be eligible if they are leading on a qualifying project. Even professional services companies such as accountancy firms might qualify, one example being if they created a system that integrated all existing financial and accounting systems into a single data analysis system, to produce analysis reports and charts which enable third parties (e.g. banks/lenders etc) to assess all lending risks more easily. This would be an example of a “computer science” project. So qualifying for the R&D Tax Credits is not about your industry, but about the tech or scientific nature of your project.
What other industry’s project examples might qualify for R&D Tax Credits?
Software Company - Development of an international inventory, stock management, logistics and workflow tool.
Travel Company - Creation of an integrated booking tool and accounts system.
Animation Studio - Development of real-time data capture and new animation techniques
Engineering/Architecture Company - Development of scanning devices for RF Tags
Food industry – Development of new recipes in terms of ability to prolong shelf life or to be compatible with the freezing process.
Geological analysis - On-going research into proliferation of micro-organic fossils for oil and gas exploration.
Chemical manufacture - Design of a logistics software platform to manage safe transportation of dangerous chemicals.
Fire safety - Design of a new tunnel-lining material.
Non-Destructive Testing – Development of a new all-in-one testing facility able to cater for items of nearly any size, dramatically decreasing lead times completing a combination of tests.
Automotive – Improving the performance and acoustic outputs of vehicle exhausts over a range of different models.
Test Engineering Solutions Company – Developing a number of test solutions, both hardware and software, for the marine, aviation and automotive industries.
Electronics – Development of a fuel & CO2 reduction and monitoring system
Do the experts in my team need to have professional qualifications?
It’s expected by HMRC that competent professionals deal with qualifying projects. They add greater weight if the people carrying out the activities are qualified in their field, either by experience or formal qualifications. It tells them that such qualified professionals are more likely to be dealing with non-routine business matters (refer back to the definition of a “project”).
If other similar project outcomes or systems existed in the market, would our project still qualify for R&D Tax Credits?
Possibly, but first you would have to question whether any technological or scientific advance has arisen, or whether your project is merely using known technologies to provide a bespoke set of reports or interface just for the benefit of your own business. Rather than taking a risk, contact us at the outset so we can help you to gain clarity by consulting HMRC.
Do we have to make public the outcomes of our project, if we gain R&D Tax Credits?
No. Unlike grants, where government agencies awarding grants wish to substantiate their contributions through publicity, there is no requirement for any public disclosure of the outcomes of the project. So any commercially sensitive information will be kept private, owing to HMRC employees being bound by the Official Secrets Act.
If our project didn’t succeed immediately in resolving all tech or scientific uncertainties, would that disqualify us for R&D Tax Credits?
No. In fact there is a greater chance of having a valid R&D Tax Credit claim if you have tried to resolve the uncertainties and there have been some failures along the way. This reinforces the case that there was some uncertainty.
We’ve been commissioned by a client to help them with their R&D tech project. Do we make the R&D tax relief claim, or do they?
If the client has commissioned you to deliver some elements of their own research project, then they make the claim not you. You will be listed in all supporting documentation (for HMRC’s inspection) as the “competent experts” who carried out elements of the client’s tech or scientific project.
What help is available if we want to find out more?
Contact Andrew Diver, Tax Director at Beatons Group. Andrew will be happy to advise on all the issues to consider for your own business and, should your project be eligible, can help with any claim for R&D tax relief.