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R&D Tax Credits is an incentive where UK Limited companies can receive a reduction or rebate on their corporation tax for monies spent on eligible R&D activities.

This incentive was established by the Government in 2000, supporting businesses of all different sizes to grow and helping the UK economy to grow through innovation.

Knowing which projects actually qualify for R&D tax relief (and those that don’t) and what expenses can be claimed (and those that can’t) are the areas where most companies are looking for advice. This is important to maximise the claim value.

Here are things that you CAN claim for:

  • Utilities (Gas, Electricity, Water).
  • Salaries and Wages.
  • Employer’s NI Contributions.
  • Employer’s Pension Contributions.
  • Materials and wastage consumed during the project.
  • Prototypes created.
  • Subcontractors invoices.
  • Software Licenses.

Once the application has been produced and finalised by yourself, it is uploaded and submitted with your corporation tax return. As soon as HMRC receive this information, it is sent to the specialist incentives unit whereby it is treated accordingly.

The supporting information and calculations submitted are then reviewed and processed within a timely manner.

If you are expecting a Tax reductions, this will be processed immediately and will show up within 24 hours.

However, if you are expecting a Tax repayment or payable credits, those are issued within 4 weeks. Depending on the method you have chosen, you can expect a bank deposit or a cheque in the post.

There are two branches of HMRC’s R&D incentive to cater for SME’s & Large companies.

Those are SME and RDEC incentives. 

The scheme you will be eligible for is determined by 3 factors:

  1. If your company has less than 500 staff
  2. and less than 86 million euros in assets 
  3. or less than 100 million euros in turnover

If you exceed the above you must claim via the Research and Development Expenditure Credit (RDEC) scheme.

The two abovementioned incentives operate in significantly different ways, so it is important to make sure you file through the correct process.

First you need to ensure you qualify for the incentive. Secondly, you need to produce the technical reports, evidence and calculations to support your claim. This can be quite intensive and if you make any mistakes you may run the risk of HMRC asking for additional information.

Alternatively, you can contact a specialist tax advisory firm such as ourselves. We will not only produce all of the above, but we will walk you through the process and safe guard you and your company to make sure you stay compliant.

The R&D incentive is aimed at UK companies that pay corporation tax. Since charities, universities and sole traders don’t pay corporation tax, they are unable to claim R&D Tax Credits.

If you are a charity you could consider becoming a CIC or if you are a sole trader you could see if becoming a limited company would be ultimately more beneficial. However, we advise you to seek professional advice on this from your accountant and we would be happy to provide an estimate on what you could receive.

In short, yes. This can become quite complex as deciphering where the grant funds have been allocated can affect your R&D claim. It can push a company that would qualify normally through the SME incentive into the RDEC incentive, which can be potentially less generous. Above all, the key thing to remember is that you can claim for R&D Tax Credits if you have been in receipt of grant funding.

100% yes! The incentive is for both profit making and loss making companies. The incentive can actually be even more generous if your company is loss making.

Yes! The claim looks at the costs incurred within your financial year. Some projects last several years so you submit a claim each year end to help further the project.

Yes. As long as you attempted to solve a scientific or technological uncertainty and incurred costs, you can claim. Many ambitious projects sadly fail for one reason or another but HMRC still reward you for attempting innovation.

Yes. The incentive is for UK based limited companies but if part of your R&D is carried out overseas via sub-contractors or even part of a larger network of offices you can still claim. However, t is always best to get clarification from an expert on these situations.

There are several ways you can receive the benefit from HMRC and each depends on your companies circumstances and the director’s preferences (in certain cases).

For claims submitted in previous years, the usual route is a cash rebate. In current years, the most common method is a reduction in your corporation tax liability if you are profitable. If you are loss-making you can elect to carry backwards or forwards losses to utilise where appropriate or you can surrender your losses for a payable credit to help with cash flow.

In some scenarios you can use a combination of the above to maximise the tax relief calculated or increase the amount of cash you receive to help with cash flow.

Our experts run through all of your options, carefully explaining the outcomes so you can make the right decision for you and your business.

Here at Counting King, we make the claims process quick and simple for clients. We understand you don’t want to get bogged down in complex calculations and writing large technical reports so we do it for you!

Our process is straightforward.

First, we have a quick 5-minute introduction call to answer any questions you may have and confirm your company is eligible.

Secondly you sign our client agreement which confirms our terms.

Then we arrange a time convenient for you to discuss your projects (this usually takes around 30 mins).

We then produce the technical reports, evidence and financial calculations to calculate and support your applications.

Once this is done, you will review all of our work to make sure you are 100% happy and then it is submitted to HMRC.

Finally, we monitor the application and inform you when it has been successfully processed. You can expect any payments to be made (usually) within 4 weeks from HMRC.

On average our claims are completed within 2-3 weeks. This usually depends on how quickly we can gather the project and financial information.

We do have a highly experienced team that can turn claims around within 48 hours in emergency situations where a deadline is looming.

HMRC review each and every claim via several methods. There is a specialist team at HMRC within the incentives unit who are solely dedicated to processing all R&D Tax Credit Applications.

Many claims submitted are processed without any interactions from HMRC however, certain claims will require further information, this is usually when HMRC request further clarification on what the project entails. Here you have the opportunity to answer their questions directly.

Where HMRC are unsure if your application meets the current BIS guidelines, they begin a formal enquiry which means they are questioning elements of your claims validity.

Submitting fraudulent or inaccurate/incomplete claims is usually why this happens.

Using an expert is the best way to avoid the above but honesty is always the best policy.

If you are hiring a 3rd party to assist with your project then you can generally claim for 65% of the payments made to unconnected parties. If you are connected to the 3rd party then the rules become a little more complex and we advise seeking advice from a professional firm like ourselves.

Initially HMRC wouldn’t expect you to necessarily have strict time recording processes in place but going forward, we would always encourage some method of recording time spent on R&D.

We charge 20% of the benefit you receive and this is only payable once you have received the benefit from HMRC, so there are no upfront costs or risk to your business.

We even have a referral scheme where we pay commission and you can offset this against your bill.

Some accountants can, usually the large national practices will have a department set up for this.

Regular high street accountants don’t typically have the training for R&D Tax Credits as it is a niche tax incentive with lots of legislation and rules. Some accountants will submit figures based upon costs you have informed that refer to R&D but unless you use the correct calculations or submit the technical reports and evidence, you can put yourself at risk of an enquiry from HMRC.

We will only produce high quality compliant applications which meet and exceed all of HMRC’s criteria.

Yes, but the grant could be considered as state aid and can affect which branch of the incentive you fall under. Claiming incorrectly can reduce your benefit amount or worse disqualify it from being processed. You should still claim but make sure you remain compliant at all times.

You can tell if a grant is notified when it is governed by the European Commission (EC). Or the UK government has given explicit permission to issue the funding for a certain grant program.

In short, no. A patent is issued upon completed R&D and so wouldn’t not be considered an allowable costs via the R&D Tax Credit incentive.

However, you can utilise another incentive called Patent Box which enables companies to apply a 10% rate of Corporation Tax to profits directly associated with the patented invention.

A subcontractor is a person paid by the R&D company to carry out a specific R&D activity.

An externally provided worker is an individual who provides or is under an obligation to provide their services personally to the R&D company under the terms of a contract between them and the staff provider.

The individual will be paid by the staff provider but work under the R&D company’s direction. The company pays the staff provider.

Under the SME scheme, there are several ways in which losses can be treated, losses can be carried back for payable tax rebates up to 3 years, or carried forward to be utilised as and when appropriate by the company.

You can also surrender losses for a payable credit at a rate of 14.5% meaning you will receive a cash payment from HMRC.

Companies who fall into the RDEC scheme receive the benefit as Above-the-line meaning it has a positive effect on your profit and loss statement showing the company as more profitable.

HMRC aims to deal with 95% of payable tax credit claims within 28 days of receiving the claim. There are certain times of year or situations that increase this time such as popular years like March & December or when HMRC is under increased workload pressure.

There is no additional record keeping requirement specifically for the purposes of claiming R&D relief. 

You should be able to give a summary of the R&D project undertaken and explain how the project qualifies as R&D within the tax relief definition. It would be helpful if you provide this information in a short report at the time of making your claim. 

Focus on the advances being sought and the uncertainties faced rather than just a description of the finished product. Include a breakdown of the expenses that qualify for relief.

Case Study

Case study: Manufacturing firm which was told they wouldn’t qualify secures vital funds.

Case study image R&D

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Knowledge Base Glossary

Appreciable improvement

To change or adapt the scientific or technological characteristics of something to the point where it is ‘better’ than the original. The improvement should be more than minor or routine upgrading and should represent something that would generally be acknowledged by a competent professional in that field as a genuine and non-trivial improvement.

Appropriate proportion

The expenditure claimed by the company for R&D must be representative of the amount of time spent carrying out qualifying R&D activity. The company must be able to demonstrate that costs have been calculated to remove any elements that were not incurred during the R&D process.

Competent professional

An expert working within the field of science or technology in which the advance is being sought.

Consumable items

Where R&D activity results in items being wholly used up or transformed within the process these are consumable items and may be eligible for relief. However, from expenditure incurred on or after 1 April 2015 where those items are incorporated into the final product and sold then the costs of those items will not be eligible for relief.

Corporation Tax

A limited company must pay Corporation Tax on profits from doing business, however the amount of Corporation Tax you pay may be reduced if you are undertaking relevant R&D activity.

Externally provided workers

Workers are provided through a staff provider. The staff provider is required to operate PAYE in relation to individual workers supplied to a client.

Filing Date

The date by which a company has to submit its tax return to HMRC. The date will be shown on the notice issued to the company. Any amendment to a tax return must be submitted no later than 12 months after the filing date.

Notifiable State Aid

State Aid is granted by public authorities through state resources to provide assistance to an organisation. Many companies receive State Aid as a contribution towards their R&D activity. If your company receives State Aid then HMRC needs to know as it can affect the amount you can claim in R&D tax relief. Your grant notification documents will

Prototype

An original model constructed to include all the technical or scientific characteristics of the new product or process determined by the R&D undertaken within a project.

Research & Development 

Research and Development for tax purposes takes place when a project seeks to achieve an advance in science or technology. The work is undertaken on a systematic basis in order to resolve technical or scientific uncertainty. It also aims to advance the level of knowledge in a particular field of science, beyond the level known before the research and development took place.

R&D Project

The R&D project is not the project to develop the product. See paragraph 19 of the Department for Business, Energy and Industrial Strategy (BEIS) guidelines (formerly Business Innovation and Skills {BIS}). It defines the “project” for R&D purposes. We very often see claims stating that the advance is the creation of a project which does x, y, z (and where the claim is based on the costs of creating that product).

RDEC

Research and Development Expenditure Credit. A stand-alone credit to be brought into account as a receipt in calculating the profits of large companies for R&D expenditure incurred on/after 1 April 2013. Companies with no corporation tax liability will benefit from RDEC through a cash payment or reduction of tax.

Readily deducible

Where the knowledge or capability is publicly available or known by competent professionals working in the field.

SME

A small or medium sized enterprise.

SME Scheme

You can only claim under the scheme for SMEs if your company meets the definition of a SME for R&D tax relief purposes. You can only claim R&D tax relief as a SME if your company is a going concern and not in administration or liquidation when you make your claim. If you’ve made a claim and the company then ceases to be a going concern you can’t get a tax credit.

Science

Science is the systematic study of the nature and behaviour of the physical and material universe. Work in the arts, humanities and social sciences, including economics, is not science for the purpose of these guidelines. Mathematical techniques are frequently used in science but mathematical advances in and of themselves are not science unless they are advances in representing the nature and behaviour of the physical and material universe.

Technology

Technology is the practical application of scientific principles and knowledge, where ‘scientific’ is based on the definition of science above.