Well, it’s an official HMRC scheme, launched 20 years ago, which encourages scientific and technological innovation within the UK. Incentivising and providing the seedbed for R&D investment by businesses is something all developed countries wish to do and many do this through the form of R&D tax relief. That is what happens here in the UK and that is what Growthviser’s work involves - helping businesses to put their claim together, exploring R&D activities and supporting them through the R&D tax credit claim process.
Unfortunately, you may be wondering this because R&D has become the new PPI and many unscrupulous advisers, with no experience in this specialist field, are running R&D tax credit ‘factories’, latching onto a few areas of expenditure and churning out claims submissions. That’s not what Growthviser does. We are technical, highly trained R&D tax credit specialists, maximising R&D claims, reporting transparently and keeping due diligence and HMRC compliance at our heart.
HMRC wants Limited Companies to claim for R&D tax credits, because innovation drives economic growth and is good for the UK. The trouble is, only a fraction of the two-thirds of companies who are eligible actually claim R&D reliefs.
Most definitely. The scheme is generous because, as I said earlier, all Governments wish to drive innovation within their economies and the best way to do that is to incentivise businesses to invest in research and development activities, knowing they will be rewarded with a tax relief or sum of money, as a result of their research and development expenditure, that they can reinvest in their business, to help fuel its growth and profitability. For this reason, the R&D Tax Reclaim scheme will pay back up to 33 pence in the pound that has been invested in qualifying R&D expenditure on scientific and technological advances. In other words, a business could be receiving a third of the money that it has spent on innovation and development within its R&D projects back into its bank account.
It’s true to say that too many rebates are around the £5000 mark and there may be reasons for this. As I said earlier, this is not an easy tax reclaim scheme to navigate as a layperson and one reason why claims may be small is that claimants are simply not including all the items of research & development expenditure that they could be encompassing within their claim. There are many eligible items of qualifying R&D expenditure, as long as they contribute to the R&D project that is undertaken. This can range from the cost of hiring laboratories and commissioning a University to research or carry out feasibility studies, to software adaptations or creation, the training of staff, costs incurred in leasing equipment and even maintenance of required equipment. It can also include scientific and technological planning, the creation of protypes and analysis. There are so many possibilities that it is easy to see how a business that is submitting their own R&D claim, or not working with a specialist, could be missing out.
Most R&D tax reclaims are reviewed within 28 days though this can vary depending on the nature of projects included in the R&D claim, complexity of accounts and the supporting documentation.
During peak periods for financial year ends, i.e. March, September and December, claims may take a little longer to process due to the increase in volumes.
Growthviser's specialist team ensures that our client's R&D claims are thorough and comprehensible to reduce the need for HMRC to raise further enquiries. However, sometimes on reviewing an R&D tax reclaim, HMRC can ask for more information. Answers to these questions can be submitted by email, and once answered satisfactorily your R&D claim should be paid out without any further queries.
HMRC may impose a penalty if an error is found that was purposely made or hidden. The penalty could be up to 100% of the tax lost but can be reduced if the information is provided promptly when requested.
Growthviser's expert team takes time to consider all aspects of your business and the R&D activities carried out. We review the report with you before submission to make sure errors do not occur.
For some reason, knowledge of this R&D tax reclaim scheme is very poor, UK-wide. Accountants seem to have been reticent to mention it, even if they have been aware of it, as it is a specialist area that many could not effectively tackle and they would not wish to pass clients to a business that potentially could, but which could then take core work away from them too. Here in Cumbria, nobody has specialised in this area, so it has really stayed under the radar.
If a business has carried out R&D activities in the recent past, however, all is not lost, as a claim can go back two accounting periods, so we could still start the claim process and make a claim for R&D expenses incurred from autumn 2017 (as we sit here in September 2020).
Having accounting expertise with industry experience is one thing. We also have our highly experienced food and drink sector specialist, Sylvia Barton, and our hugely respected manufacturing and engineering specialist, John Whittaker, But it’s the reason behind this strategy that really makes us different, as we want to be part of our clients’ story, in a more holistic fashion than other R&D tax reclaim specialists in the UK. We wish to work and mentor businesses during the R&D claim process, rather than just handling a claim when they’ve already been through the R&D stage. It’s about being with them on the journey to their destination, striving to get them their maximum financial entitlement and then recommencing the cycle as we help them utilise their reinvestment in the business, so as to drive further innovation and growth. In our view, the R&D Tax Reclaim scheme is not enough to deliver on the objectives that the Government seeks. It takes specialists like ourselves to, in a manner of speaking, ‘hold the hand’ of the innovators and help steer their direction and ideas, to create as many fruitful outcomes as possible. For us, that’s what Growthviser is all about.
WHAT QUALIFIES FOR R&D TAX RELIEF?
Yes, R&D tax credits are available to any company paying UK corporation tax, including those limited by guarantee, so long as you meet the usual eligibility criteria.
It takes many forms and this is where having an R&D tax reclaim specialist handle things for you is so beneficial, as it is pretty complicated and you need to be able to interpret what HMRC will and will not regard as R&D. Fundamentally, the activity undertaken should lead to an advancement in overall knowledge of capability within a field of science or technology and it will often have a tangible consequence – a new product or process that resolves an issue or delivers a new solution. However, where it gets complicated is in the fact that outcomes can also be intangible – delivering new knowledge or generating improvement, in some form or other. The word ‘advance’ is very important.
Yes, most definitely. “Appreciable improvement” is a phrase that HMRC uses and this improvement could be to an existing process, material, device, product or service but has to be delivered through scientific or technological changes. You could build or develop something, based on another thing that already exists, but make some form of fundamental improvement to it and that would qualify. You cannot, however, just copy or duplicate something per se, without some form of innovation within the production or processing. Any improvement needs to pass the HMRC test of being “genuine and non-trivial”, in the eyes of someone who is a competent professional within their field of expertise.
No, not necessarily. R&D is all about testing, trial and error and validating hypotheses and all can lead to success, but also a conclusion that something just will not work. Even if the outcome is the latter, or a project has to be aborted, investment will have been made in getting to that stage and this would allow a claim to be submitted.
HMRC defines science, for the purposes of its R&D Tax Reclaim scheme, as the systematic study of the nature and behaviour of physical and material universes. This excludes the arts, social sciences, humanities and economics. Mathematics would only be regarded as an eligible area, if the mathematics input was being poured into scientific or technological advances.
Technology is viewed as the practical application of scientific principles and knowledge – the delivery mechanism in many ways - with science being defined as above.
Not at all. The HMRC website gives examples of R&D innovations and these range from the creation of a new weave of material for a garment, to the development of a weedkiller. The latter is particularly interesting in a Cumbrian context, as innovation within agriculture is rife and yet we see far too few R&D tax reclaims being submitted by the farming community who, as guardians of a changing landscape, are natural problem solvers and solutions finders. With all of the need to improve yields, develop eco-friendly farming methodologies, tackle climate change and develop products that suit new dietary trends such as veganism, it is little wonder that so much innovation is going on within the world of farming and agriculture.
The great pity is that so few farmers are taking advantage of the R&D Tax Reclaim scheme to bring a significant proportion of the money spent on such innovation back into their businesses, to help enrich and grow them.
Definitely. Living and working here in Cumbria, one of my main aims is to support the farming community to the hilt and what better way to do that than to be instrumental in bringing money back through the farmhouse door, for business reinvestment? I know that we can have a major impact on the future sustainability of many farming businesses, which is why one of my first moves, after founding Growthviser, was to bring in the farming entrepreneur, Joe Towers, of Brades Farm in Lancashire – the developer of Brades Farm Barista Milk and a British Farming Awards winner. Joe talks the language of the average innovative farmer and is ideally placed to help me maximise their tax reclaims.
There is currently no minimum expenditure on qualifying research and development.
Furlough employees' costs cannot be claimed as furloughed employees cannot undertake any work whilst furloughed and therefore cannot be involved in R&D project activities.
You can claim research and development (R&D) tax credits on revenue expenditure, for example, day-to-day operational costs. The capital expenditure (money spent on fixed assets such as land and buildings) is usually not eligible.
Revenue expenditure includes the following costs which can be included in your R&D claim:
For SMEs and large companies this category can include:
Gross salaries (including wages, overtime pay, and bonuses);
Employer NI contributions;
Employer pension contributions; and
Certain reimbursed business expenses.
The benefits in kind, such as company car, are specifically excluded from the staff costs category. You cannot include director dividends. This can have a large impact on the total claim value if directors spend time on the R&D activities.
If you are an SME you can include expenditure on subcontractors that were involved in R&D projects in your R&D tax credit claim. For ‘unconnected’ subcontractors, payments that are linked to R&D activities are restricted to 65% for the purposes of the claim. For ‘connected’ subcontractors, the rules are more complex and are based on the nature of the subcontractor’s expenditure.
Materials that are consumed or transformed in your R&D process are defined as consumables: this category includes water, fuel, and power. Your expenditure on the materials consumed or transformed in the R&D process may be included in your claim. Common examples include materials for use in trials.
Once your work to resolve the technological or scientific uncertainty is finished, any additional costs for consumables such as marketing cannot be included in your claim. You should only include the consumable costs which relate to your R&D work.
Your revenue expenditure on computer software involved in R&D activities may be included. Also, software partly used for R&D can be included at a reasonable apportionment.
Third-party staff providers such as staffing agencies alongside personal service companies paid by way of invoice as opposed to being placed on payroll can be claimed for but at a reduced rate of 65%.
Yes, similarly to EPW's, subcontractor costs related to your R&D project are also able to be claimed at a reduced rate of 65%. The work carried out by subcontractors does not need to be actual R&D; it can be a component essential to the R&D project.
Outsourcing work to companies abroad does not prevent you from claiming R&D tax credits. In some cases, it is a cost-effective way to carry out research projects. It is, however, important you continue to retain any risk associated with the project, especially where "testing" is being carried out.
Clients often ask whether they can submit an R&D tax credit claim even though they have had access to grant funding. The answer is yes; both can be used as funding sources to grow your business. R&D tax credits and grant funding can work well together when planned and handled strategically by your Growthviser Expert.