Research & Development (R&D) Tax Relief
What is R&D tax relief?
Research & Development tax relief is a government incentive established in 2000 to offer financial support to companies, with the aim of improving long term economic growth for the UK. It allows companies that carry out qualifying R&D related to their trade, to claim an extra CT deduction for qualifying expenditure and also gives the option of receiving a payable tax credit where losses are created. However, many businesses do not claim the R&D tax relief that they are eligible for, or are not claiming their full entitlement, which in our experience stems from a number of misconceptions, the most common of which being:
“We do not do any research and development”
The headline requirement of “an advance in science and technology”, can and does, deter thousands of companies from making a claim, but HMRC, in their own publications, clearly state that this is ‘not just for “white coat” scientific research’ and that “brown coat” development also qualifies, i.e. construction, engineering, food technology, textiles, financial services etc.
Global activity is experiencing an ever increasing emphasis on innovation and the UK Government’s business strategy is to encourage the expansion of research and development work undertaken by UK companies, to allow them to continue to compete effectively in world markets. In recognition of the need to offer financial support to businesses to enable them to invest in this innovation, the UK Government introduced the Research and Development tax relief.
Despite significant promotion of the scheme since its inception, and numerous subsequent changes to make it more financially attractive – for example the SME rate of relief was increased from 150% of qualifying expenditure in 2000, to its current rate of 230% – research suggests that as many as 97% of eligible businesses fail to claim the R&D tax relief they are entitled to and miss out on vital funds that could be reinvested back into their businesses. To this end, the UK Government has committed to achieving an increase in R&D expenditure to 2.4% of GDP by 2027, this being from a current level of 1.7% (approx.). We believe that the main reasons for both the current low number and value of claims, are firstly a lack of understanding of what R&D for tax purposes means and secondly, how to identify ALL qualifying expenditure.
Cost Care Tax are specialists, trusted by hundreds of accountants across the UK, who work with both first time claimants who have never considered R&D tax relief before, in addition to clients familiar with the process who are looking to ensure that they are maximising their entitlement. Cost Care Tax has made thousands of successful claims over the years, reclaiming £millions that businesses can reinvest in future R&D, thus promoting growth, both for their own business and the UK economy as a whole.
The average monetary benefit to our clients is currently over £69,000 per client. Please get in touch to find out how much you could claim.
Benefits of claiming R&D tax relief
Companies that qualify for relief can benefit from a reduction in corporation tax (CT) liability and loss making businesses can receive a payable tax credit, both of which impact positively on the business.
Example monetary benefits:
Project expenditure £100,000 = £130,000 enhancement = reduction in CT liability of £24,700 assuming 19% CT rate.
For a loss making company, a project spend of £100,000 can generate a cash payment of £33,350, assuming a loss surrender rate of 14.5%.
• Reinvest in your business, people and processes – hire that additional developer or purchase that piece of machinery.
• Fund future R&D projects to further expand knowledge and capability in your sector.
• Improve your credit rating, reducing the cost of supply
• Companies with R&D expenditure on the P&L account can attract a higher sale value
How does HMRC define R&D?
The work that qualifies for R&D can relate to a new or improved process, product or service as part of a specific project to make a scientific or technological advancement relating to your company’s trade. The business seeking R&D tax relief must explain how its project:
• Had to overcome uncertainty – you sought to develop something that wasn’t known to be scientifically or technologically feasible, or was subject to trade secrecy.
• Tried to overcome this uncertainty – through research, testing and analysis.
• Sought a technological or technological advance – one that could benefit the whole sector, not just your own business.
• Couldn’t be easily worked out by a professional in the field.
R&D tax reliefs are not just for scientists dressed in white laboratory coats. Many of our clients were unaware that they were involved in qualifying activity. Whether you’re a press tool manufacturer, a steel fabricator, a software developer or in the food industry, you may be surprised how much you could claim back for your hard work.
Claiming R&D tax relief may sound complicated, but our proven claims procedure takes the stress out of the process allowing you to concentrate on running your business.
Is my business eligible for R&D tax relief?
Are you a UK incorporated company? Have you delivered a project that was beset by difficulty? Have you spent time and/or money developing it? If you answer “yes”, you will likely qualify for R&D tax relief. Profit-making and loss-making businesses have equal access to the R&D tax relief scheme, regardless of industry sector.
HMRC operates two schemes; one for SME’s and another for large companies.
Small and medium-sized enterprise (SME) R&D tax relief
You can claim SME R&D tax relief if your business has:
• Fewer than 500 staff
• A turnover below €100m or a balance sheet below €86m.
SME R&D relief allows companies to deduct an additional 130% of qualifying costs from taxable profit, in addition to the normal 100% reduction through the profit and loss, bringing the total to 230%.
R&D Expenditure Credit (RDEC) scheme for large businesses
RDEC was launched in April 2016 to replace the large company scheme and is for companies with staff numbers and finances that fall outside of SME qualification. RDEC can also be claimed by SME’s that have been subcontracted to carry out R&D activity by a large company or by those who have received certain grants or subsidies to perform the development works. The RDEC is a tax credit for 11% of qualifying R&D expenditure up to 31st December 2017 and 12% from 1st January 2018, although unlike the SME scheme, this credit is taxable.
Project expenditure £100,000 x 12% = £12,000 – 19% CT (£2,280) = £9,720.
No matter which scheme applies to your business, Cost Care Tax has unrivalled experience in claiming back millions of pounds for small and large businesses alike.
Businesses in any industry can apply for R&D tax relief if HMRC criteria is satisfied and the costs are eligible. We have claimed back £millions for clients in the following industries:
• Technology – software developers, IT specialists, hardware developers.
• Engineering – civil, aerospace, chemical, electrical and design engineering.
• Construction – residential and non-residential.
• Automotive – component manufacture, design and maintenance.
• Manufacturing – textiles, steel, chemical and electronics.
• Food and Drink – ingredient manufacture, out-of-home food service.
• Printing and packaging – physical and digital
• Aviation – plane and drone manufacturers
This list is by no means exhaustive, so do not worry if you operate in a different sector as no company should be refused R&D tax relief based on industry. We have made thousands of claims across all sectors, so we’ve acquired considerable industry knowledge along the way. We combine your R&D development information with our rich expertise to produce high-quality submissions for HMRC, that tick all the boxes.
What costs can be included in an R&D claim?
You can include any or all of the costs below as part of your claim:
• Staff costs (Incl. gross pay, employer’s NI, reimbursed employee expenses and employer’s pension contributions).
• Agency workers (externally provided workers).
• Subcontractors/freelancers (limited to 65% of cost in most cases).
• Software license costs.
• Consumable items (heat, light and power and materials and equipment used or transformed by the R&D process).
• Payments to the subjects of clinical trials.
Our friendly calculations team can advise which costs can and can’t be included in your claim and they have a proven track record of maximising tax relief for each client.
The claims process
We appreciate that our clients invest the majority of their time and energy into running their businesses, with little or no time spare to devote to compiling a Research and Development claim. That is why our streamlined claims process is designed to save you time, stress and inconvenience. We only need a small investment of your time to learn about your R&D projects and we’ll take care of the rest.
1. One of our knowledgeable, experienced business development team will have an initial conversation with you to confirm eligibility potential, to avoid wasting your valuable time going forward if we do not feel there would be any possibility of a successful claim.
2. If we identify potentially qualifying areas, you will be asked to sign an Agreement and a dedicated Key Account Manager will be assigned to assist you every step of the way.
3. A member of our R&D technical team will assess your R&D activity – we have numerous means of gathering this information, which would typically be over the telephone, by email or through a site visit and would be determined on a case by case basis.
4. Following qualification of R & D activity, a request will be made for your P&L accounts, tax computations and payroll information.
5. A technical report will be written and financial schedules produced for delivery to your accountant, following approval of report content from yourselves.
6. You will receive a tax repayment or tax liability reduction within approximately 6 weeks.
7. Cost Care Tax will request payment for the service using our competitive rates; fees are completely contingent on a successful outcome.
Why Cost Care Tax?
We’ve been providing specialist business services since 1995, successfully reclaiming millions of pounds in R&D tax relief and capital allowances for thousands of forward-thinking businesses throughout the UK. Our highly-skilled team is trusted by a significant number of accountants to provide their clients with specialist advice and they can be confident that we will work assiduously to maximise claims and comply with HMRC eligibility requirements. Our fees are inclusive of any liaison with HMRC which may be necessary to ensure a successful outcome and you will only be liable for payment of our fees following a successful claim.
• Your claim managed from start to finish by our team of tax specialists.
• Dedicated Key Account Manager to assist you every step of the way.
• Maximise your R&D claim by identifying qualifying projects and eligible expenses.
• Write market-leading technical reports to present your R&D activity to HMRC.
• We manage all interaction with HMRC so you don’t have to.
• No claim – no fee charging structure with no nasty surprises.
• Always up to date with the latest HMRC guidelines.
If you would like us to start working on a claim for you, please get in touch and speak to one of our friendly advisers to discuss your eligibility.
“Even as small business (10 employees) we spend significant amounts on R&D projects both in time and materials. Costcare has managed our R&D Tax Credit claims for the past 7 years, and in that time we’ve found their professional approach has made the process as straight forward and painless. They have always been to there to help us understand what is claimable and what isn’t, and provide us with an easy to use record document for recording R&D projects. The submission reports they write are very thorough, and once approved by us they deal directly with our accounts in submitting the claim to HMRC. To date with their help we have been able to reclaim circa £50,000. Our only regret is we didn’t use them sooner.”
“As a genuine customer of Cost Care Tax we can only thank them wholeheartedly for their professional service over the past couple of years. We were recommended Cost Care Tax services by a larger contractor whom had dealt with Cost Care Tax for various accounting and R&D tax purposes. Needless to say we were not disappointed and they lived up to their recommendation with a high level of professionalism and attentiveness. As a smaller contractor we can rarely afford the time nor the internal personnel to carry out the abundance of paperwork involved in R&D tax credits – Cost Care Tax takes that pressure off and carries the burden both with complete care and within a decent time frame. We look forward to a continued relationship with all at Cost Care Tax and would like to thank the team for a job well done on our R&D tax submission!”
“I was a bit sceptical at first whether Cost Care Tax could actually get me a R&D tax refund for my business. However after a painless process I received a £6k tax refund from our good friends at HMRC who saw the value in our research and development activity. Therefore i would strongly recommend this company.”
“I have dealt with Cost Care Tax on a number of occasions, and have always found them to be a straight forward, honest company. I would not hesitate to recommend them.”
“Mark, I think the technical report is yet again outstanding. Absolutely perfect and gives a very accurate description of all the projects, thank you so much.”