We at 360 have been processing Research and Development (more commonly know as R&D) claims for businesses since our inception over a decade ago, during that time we have encountered a lot of opinions on what people think constitutes an R&D business and who can claim and what for, many of these have been not quite correct which has led to be qualifying businesses to not submit claims over the years and potentially be missing out on tens, if not hundreds of thousands of pounds in tax relief and tax credits which they would be entitled to.
HMRC estimates that there are between 150,000 and 200,000 eligible businesses carrying out R&D qualifying activities in the UK, but only a fraction of these actually ever submit a claim, so why is this?
“You can only claim if you’ve invented or formulated something completely new.” – MISCONCEPTION
In fact this is only a small area of eligible activities that businesses are able to claim for. Any business that is modifying or improving an existing product or service within their marketplace is eligible to claim, this also extends to processes within a business, for example if a business is looking internally and improving its existing processes in a way unique to them then chances are yet again they will be eligible to make an R&D claim. There are a multitude of qualifying activities that you could be undertaking right now so if you think this might apply to your business then get in touch with us today to get the ball rolling.
“We can’t claim as we’re only a small business and we’re not in a common R&D industry.” – MYTH
This could not be further from the truth, in fact any business from any industry could be eligible to claim, it all depends on what activity you’re undertaking and if this meets the criteria. There are R&D schemes available for small and medium sized enterprises as well as large businesses so all businesses across the UK are catered for.
“There’s no point in our business claiming as we’ve not spent any money on our R&D projects, only time.” – MISCONCEPTION
Within an R&D claim there are only certain types of expenditure that can be claimed for, these include software, consumables, sub-contractors, prototype costs but typically the biggest and often most under the radar is actually staff costs. This means that if your business is undertaking an R&D qualifying activity and you are committing your team’s time to this then you can claim for a relevant percentage (in line with how long they are spending on the project) of their salary and on costs as part of the costs of the claim. This can lead to substantial tax credits and savings just through identifying regular, day to day costs.
“Our business makes a profit every year, surely we’re not entitled to claim R&D reliefs?” – MYTH
Both loss making and profitable businesses are eligible to claim for R&D relief, profitable businesses are able to claim an enhanced expenditure deduction of 130% of any R&D relevant costs, meaning for every £100,000 of R&D spend the business would received an additional deduction of £130,000 to offset against it’s taxable profits, meaning they would likely save corporation tax at 19%, that equates to £24,700 in this scenario, providing taxable profits were at least £130,000 before the deduction. Even if the deduction turned the taxable profit into a loss there is still an opportunity to claim additional relief by way of a tax credit, as is illustrated below.
Loss making business will quite often qualify for a tax credit of 14.5% of their R&D relevant costs plus the enhanced expenditure deduction, what this means in practice is that for every £100,000 of qualifying R&D spend this is enhanced by 130% to generate an additional deduction of £130,000 to add on to the existing loss. Then providing the losses prior to any enhanced deductions were at least £100,000 this business could then surrender part of these losses in favour of claiming a tax credit from HMRC of 14.5% of the full 230% i.e. £230,000 in this scenario, meaning they would receive £33,350 off an R&D spend of only £100,000.
If any of this has peaked your interest or made you look at your business differently then please get in touch with our in-house R&D specialist Andrew Jordan on 01482 427360 or e-mail him at firstname.lastname@example.org to discuss your business and it’s potential to claim, there’s no cost involved unless you decide to make a claim and even then all of our costs are communicated up-front so there really is nothing to lose and everything to gain.