29 September 2017

Making the most of R&D tax relief

The Government’s R&D tax relief scheme could provide many growing organisations and tech start-ups with a valuable cash boost.

R&D tax relief has been available since 2000, when the Government introduced the scheme to encourage scientific and technological innovation within the UK. It is not only aimed at projects involving ‘men in lab coats’, but applies to many R&D activities even where the task does not include ‘blue sky’ innovation or creating something truly novel.

An R&D project could qualify if it involves significantly enhancing an existing system or experimentally developing a solution where the outcome is not easily available. If your organisation undertakes activities that could meet that description, it would be worth assessing eligibility for a claim.

Cash benefit

R&D tax relief claims can be highly beneficial for all organisations, especially growing start-ups. Following a successful claim, they can receive up to 33% of the total R&D costs as a cash injection.

Organisations are encouraged to consider whether they could benefit from the scheme. Remember that the Government established the relief to encourage ‘innovative activity’ – and this takes many forms. The scheme is there to reward companies that have attempted to overcome scientific, technical or maybe even business challenges through the creation or enhancement of solutions.

Eligible projects

Essentially, R&D tax relief focuses on projects that are 'seeking an advance in science and/or technology' through the 'resolution of scientific and/or technological uncertainty'. This wording is not particularly easy to interpret and can lead people to overlook potentially eligible R&D costs. For example, some activities may not be considered to be resolving uncertainties. But if you are trying to improve a process in your organisation, there will usually be an element of uncertainty about its success. The costs associated with resolving that uncertainty could therefore be eligible for an R&D tax credit.

Claim mechanics

In our experience, once we have been engaged to prepare an R&D tax relief claim, it takes an average of two months to gather all details and submit the claim to HMRC. This will vary depending on the complexity of the projects involved and the availability of the applicant company to address any queries. Once the claim is submitted, you can expect to receive the cash benefit of a successful claim within four to six weeks. The whole process could therefore take just three to four months from start to finish.

To help streamline the claims process, companies could keep records of any new development activity, noting any areas of that development that took longer than anticipated.

Increased benefit over time

Staff costs usually contribute the largest part of any R&D tax relief claim. If your organisation is in its infancy, with a small handful of staff who get involved in R&D activities, you will probably find that the benefit quantum for a single year is not that significant. However, as the scheme allows you to look back between two to three years, making a claim for multiple years could deliver a more material cash benefit for your business. If the cash injection enables your business to grow faster than expected, future claims could become gradually more substantial.

We have helped many organisations make successful R&D tax relief claims and are specialists in identifying the key qualifying elements of a project. In our experience, even companies that don’t think they spend any money on R&D may well be doing so. Even briefly exploring the possibility of claiming R&D tax relief is often time well spent.

To find out more about the ways in which you could take advantage of R&D tax credits, please contact Kirsty Murray. 

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