R&D Tax Credits: Is My Company Eligible?

R&D Tax Credits: Is My Company Eligible?

Could your business benefit from a reduced tax bill? If you are not already claiming Research and Development (R&D) tax relief, it’s time to consider it.

This article has been written by Mark Paul, a consultant on business funding and R&D tax credits, and Director at Business Solutions (Midlands) Ltd.

Many business owners are unaware of the potential benefits of Research and Development Tax Credits. Others are aware about it, but don’t make a claim because they think the process is too difficult - or because they simply don’t realise their business is eligible.

The Research and Development Tax Credit scheme was launched by HMRC in 2000. It’s an incentive designed to encourage innovation by companies operating in the UK.

However, in our opinion, this scheme is significantly underused by companies in the UK, especially within the SME community. There are significant sums of money to be reclaimed by companies of all sizes, which can provide a vital boost for small and growing businesses.

The initiative enables companies to claim back a proportion of their Corporation Tax, based on expenditure that can be associated with Research and Development projects. If you think you are not spending any money or resource on Research and Development activities, please think again, as you most probably are.

For instance, eligible companies are typically involved in fields such as software development, manufacturing innovation, prototype research, and changes in tooling protocols. There are many more qualifying factors that could mean your business is eligible.

For instance:

  1. Is your company involved in the development of new products and/ or processes
  2. Does your company get involved in innovative and bespoke product or process development on behalf of your clients?
  3. Are you able to highlight the key areas of your development work which requires significant input from your workforce?
  4. Do you continually look to improve your product or process to meet customer requirements?

If you think your business may fall within the R&D Tax Claim scheme, read on to learn our top tips for making a successful claim.

R&D Tax Credits - Our Top Tips for Claim Success

  1. Put in place an effective finance system, for example, a simple spreadsheet, to capture qualifying expenditure on R&D projects.
  2. Ensure that employees who are involved in R&D projects understand that claims may be submitted based on the projects that they are working on. Introduce workable processes, including a basic timesheet system to enable them to record the time that they spend on R&D projects.
  3. Ask relevant staff to document details of the R&D projects that they are working on to enable easier collation of details of qualifying projects at the year end. Sources of basic information that may help in this regard may include:
    • Quality control records
    • Lists of prototype trials
    • Materials specifically used for R&D purposes, and other general project lists
    • In addition, an issues log that details the problems and issues faced during prototype development would be useful.
  4. Capital expenditure incurred on equipment used in R&D projects may qualify for tax relief in the year of acquisition, so ensure that such expenditure is identified. This may include expenditure on machines, tooling, IT equipment and software licenses, and property.
  5. Patent applications and accolades such as innovation awards also provide strong evidence that qualifying R&D has occurred within the business.
  6. Abortive R&D projects can also qualify for relief. Don’t forget to record details of these too.
  7. Finally, receiving any kind of subsidy or grant towards R&D projects can complicate matters, so please speak to an R&D tax relief specialist before you take such subsidies.

If you believe that your company has done, or is currently doing some of the above, you could be eligible to claim significant sums through the R&D Tax Credits initiative. Visit www.bsmidlands.co.uk for more information, or email mark@bsmidlands.co.uk.