You might have heard of Research and Development (R&D) Tax Relief – but perhaps you think it’s only for larger businesses with labs full of white-coated technicians?
In fact, R&D tax relief is available to businesses of all sizes and working in a diverse range of industry sectors. Many accountancy practices don’t fully understand how it works though, so a lot of eligible businesses are missing out on a significant boost to their cash flow.
Are you one of them?
It’s a specialist area for our trusted partner Libcus. For more than ten years, they’ve been helping business owners understand whether they’re eligible – and if they are, providing them with a hands-free solution to recover what’s due.
To help you decide if your business might qualify, we asked Libcus Director Matthew Thomson to answer a few key questions.
Q: What is R&D tax relief?
A: The government introduced it in 2000. It’s designed to encourage business innovation and growth in UK industry by mitigating some of the financial risk associated with research and development.
Businesses can claim a refund for the cost of any qualifying research and development activities they undertake. Depending on their circumstances, they can receive the relief as a cash payment, or offset it against their Corporation Tax liability.
Q: What kind of businesses are eligible?
A: All businesses – profitable or loss-making are eligible so long as they are registered as a UK Limited Company and have completed at least one full year of trading. Relief is available to companies working in a broad range of industry sectors including software and IT, pharmaceutical, engineering, electronics, agriculture, construction, food manufacturing and recycling – to name just a few.
There are two parts to the scheme: one for SMEs with under 500 employees and a less generous scheme for larger companies.
Q: What kind of activities qualify?
A: HMRC says that to qualify for relief, activity must involve ‘undertaking product or software development which is not readily deducible by a competent professional’.
This is a deliberately broad definition that means a wide range of projects is potentially eligible. You could, for example, be a software company developing search engine advancements, a food manufacturer looking into extending the shelf life of produce, or an energy company exploring ways to create improved products by using waste resources.
It can be confusing knowing whether you’re eligible to claim, but if you answer ‘yes’ to any of the following questions, there’s a good chance you will qualify:
- Have you overcome a technical challenge or uncertainty through improving existing products or processes or developing new ones?
- Have you improved the way a product is manufactured?
- Are you combining two or more existing technologies in a unique way?
- Have you made technological improvements to an existing system?
- Have you had any software developed specifically for your manufacturing or distribution process?
- Are you trying to make something better, cheaper, faster or more efficient?
- Have you undertaken testing?
Q: What kind of costs qualify?
A: You can claim a proportion of your costs for staff (including PAYE and pension), subcontractors, certain overheads and consumables.
Q: How much can you claim?
A: On average, small to medium-sized businesses can claim back up to 25% of their eligible spend. R&D tax relief can be claimed year on year, and if you’re claiming for the first time, you can recover costs for your last two completed accounting periods.
It’s worth noting that dividend costs cannot be reclaimed.
Q: Why use an R&D Tax specialist?
A: Using a specialist rather than doing it yourself has many advantages.
- Your claim is more likely to be successful. Interpreting guidelines can be complex. A specialist will know what HMRC will and won’t consider eligible. They will know the questions to ask, and if anything requires clarifying, they will speak with HMRC direct.
- It will save you time. Navigating R&D can be time-consuming. Using a specialist will leave you free to focus on your business.
- You’ll be fully protected. Any time up to two years after approving a claim, HMRC can decide to review it. Should HMRC decide to review your case for any reason, a specialist can help you through the process. At Libcus, we liaise with HMRC on your behalf, both in terms of paperwork and meetings, to prove your eligibility, at no extra cost.
- There’s no risk. Because a specialist will work on a ‘no win no fee’ basis, there’s no financial exposure.
Q: What’s the claim process?
A: The team at Libcus aim to make the process as straightforward and hassle-free as possible.
First, we’ll arrange for you to have a short phone call with one of our consultants who will check you meet the qualifying criteria. If you do, we’ll assign you a technical consultant with experience in your industry sector to chat through the process in more detail.
To understand your project and what you’re entitled to claim, we’ll need to talk to your technical and financial team. Depending on your needs and time constraints, we can be flexible in how we work with you, either meeting face to face or communicating via Skype, telephone or email.
When we’ve gathered all the information we need, we’ll prepare a report and submit a claim to HMRC on your behalf. We take care of everything from beginning to end. With over ten years’ experience and a good working relationship with HMRC, we know how to present the finances and how the report needs to be formulated.
Do You Think Your Business Qualifies for R&D Tax Relief? Find Out for Free!
Finding out whether your company is eligible for R&D tax relief is simple, free, and requires no form filling or face to face meeting – just a short telephone conversation.
Start your R&D tax relief claim now by calling Matthew Thomson at Libcus on 01629 810222 to arrange an initial chat, or email him at [email protected].