7 Most Common Misconceptions About R&D Tax Credits

7-Most-Common-Misconceptions-About-RD-Tax-CreditsEver since the R&D Tax Credits scheme was launched in the year 2000, it’s been regarded as a resounding success. In fact, each year as much as £4.3 billion of tax relief support is claimed in the UK, providing a valuable cash injection for businesses of all sizes in all sectors.

Investing in the future growth and development of a company is costly, but R&D Tax Credits are designed to ease the burden.  Any corporate expenditure on building new technologies, modifying infrastructure and improving processes may qualify for this government refund.

R&D investment is recognised as the key driver of economic growth, which is why governments are often very keen to encourage it. However, there are still many misconceptions around R&D tax credit relief which can mean companies missing out on thousands of pounds of government support. In this article, EFM will lay some of these myths to rest for good.

  1. You can’t claim R&D Tax Credits if your project failed. FALSE

Many businesses believe, incorrectly, that if they had to abandon their R&D work or the project ultimately failed in its goal, then it won’t attract R&D tax relief. This isn’t true, because the main thing is that R&D work is undertaken, it’s about the ‘journey’ not necessarily the end goal.

In fact, failed projects often strongly indicate that R&D work has taken place, which is therefore likely to qualify for the relief. Technical difficulty, experimental work and waste are all signs of scheme eligibility and can make up a major part of any claim.

  1. Only companies that are in profit can claim. FALSE

Over past years, we’ve found that many companies don’t claim for R&D Tax Credits just because they aren’t profitable. This lack of profit could be for all sorts of reasons but is particularly common in start-ups. Such companies often mistakenly believe that the relief is not aimed at them, which is false.

Loss-making companies can receive R&D Tax Credits if their application is approved by HMRC. How much a business receives however is dependent on the tax specialist that is assessing the claim to determine the full extent of your relevant qualifying R&D costs.

Small and Medium Enterprises (SMEs) that have made a loss can claim a cash refund of 33% of eligible R&D expenditure, whilst large companies can claim relief. Loss-making SMEs can alternatively decide to carry the R&D loss forward/backwards against profits, alongside existing losses.

  1. There’s a minimum spend to be eligible. FALSE

There’s no minimum (or maximum) amount that a company needs to have spent on R&D work in order to make a claim for R&D tax relief. Some businesses mistakenly believe there is a minimum, probably because there used to be prior to April 2012.

In the years before 2012, businesses needed to have spent a minimum of £10,000 on relevant R&D projects in order to claim R&D Tax Credits, however this is no longer the case. R&D Tax Credit applications can be submitted for even the smallest amounts, which is fantastic news for very small companies and those with limited budgets.

  1. Configuring an existing IT package constitutes R&D. FALSE

Unfortunately, simply configuring a package that is readily available on the market for your bespoke application, however time consuming, doesn’t mean the work is eligible for R&D Tax Credits.

To qualify there must be a system uncertainty or some advance in modern computer technology or breaking of new ground. HMRC’s opinion on the legislation can be very difficult to predict, which is why it pays to talk to R&D tax relief specialists such as ourselves, who will be able to identify the qualifying elements of a project.

  1. You can’t claim for R&D work that has been completed by a subcontractor. FALSE

Currently, product development that has been outsourced to partners or subcontractors can usually be included in an R&D Tax Credit claim, but it depends on your company’s size.

This can be particularly helpful to smaller companies for whom pooling resources and collaborating with others is vitally important. Subcontracting is a rather complicated area, so again we recommend contacting us for the latest advice.

  1. R&D tax relief is all about scientists in white lab coats. FALSE

Eligible R&D projects cover a far wider breadth of activity. Yes, it can be about pure science-based research and development costs (laboratory costs, scientists’ salaries etc.), but it’s open to every business regardless of sector, and the benchmark can be lower than imagined.

From IT to engineering, manufacturing to retail, if there has been an element of scientific or technological uncertainty then it’s worth obtaining a specialist opinion (free) of whether you can claim.

  1. Making a claim is quick and easy. FALSE– so don’t go it alone!

This one highly depends on how you go about making your claim. The claims process appears at first sight to be straightforward. However, the rules are strict and it’s easy to make incorrect calculations, use the wrong wording in your application or miss something out.  There are also a number of factors that can massively affect the value of the claim that are not widely advertised on HMRC’s simplified guidance.

The fact-finding part of the process can be also be laborious, depending on the records you’ve kept, and you’re likely to have questions you need answering along the way.

Essentially, if you tackle an R&D Tax Credit claim on your own it’s much more likely that your application could fail, plus it may also trigger an expensive and stressful tax enquiry by HMRC. Therefore, it’s important to use the services of R&D tax relief specialists such as ourselves.

EFM can help support your R&D Claim

EFM know the application process and can guide you through it quickly and painlessly for the best chances of success.

All UK businesses should take full advantage of their R&D tax credit relief entitlements. If you think your business is entitled to R&D Tax Credits relief, get in touch with EFM.

Contact our central team on clientcare@efm.uk.com or call 01582 516300.