Making the most of R&D tax relief
So many businesses are overlooking research and development (R&D) tax relief, not realising that they could be eligible for the Government incentive, which can help to reduce your Corporation Tax bill or provide a cash repayment on the money invested.
In fact, according to figures from HMRC, only 26,255 (0.3 per cent) of SMEs are making claims for R&D relief – a tiny number when considering the UK is home to more than five million small and medium businesses. However, R&D is moving in the right direction, with the total number of claims and amount of relief claimed rising by 20 per cent. The average claim value for an SME now stands at approximately £60,000.
R&D is a major tax incentive for businesses as it enables your organisation to claim up to £43.70 for every £100 spent on qualifying costs, including wages, materials, overheads and software.
At Champion Accountants, our specialist R&D tax advisors have helped our clients to claim back more than £21million in R&D tax relief, with a 100% success rate on all claims made.
We’ve reclaimed thousands of pounds spent on research and development activities for a number of manufacturing and engineering businesses, and to help you to get the most out of the relief, here are our top tips from Champion’s in-house R&D team.
- Consider the definition of R&D – “a project which seeks to achieve an advance in science or technology through the resolution of scientific or technological uncertainty.” R&D isn’t restricted to people in lab coats and software developers – the opportunity is there for all companies resolving technical challenges and extending knowledge or capability in their industry.
- Seek out a good R&D tax advisor who can help apply the definition and explain the criteria to you. Whilst they may take a percentage of the tax saving, they’re the experts in this field and can save you thousands in tax for the activities you do on a daily basis.
- Make it a priority to fully understand your business’ R&D position. If you know the type of activities that qualify, you can make informed decisions based on the actual cost to your company.
- Recognise R&D projects on an ongoing basis and document evidence as you go. This could be keeping project plans with monthly updates and revisions or making R&D employees keep timesheets to substantiate their time spent. Staying on top of your R&D costs helps you to maximise claims.
- R&D claims can be made up to two years’ after your company’s year-end. If you have a 31 December year-end you can still make a claim for 2016 up until 31 December 2018. Don’t miss out on relief you’re entitled to.
- The most significant proportion of an R&D claim is generally staffing costs. The relief available for using sub-contractors is restricted, so it may be best to keep your R&D in-house.
- Don’t always assume dividends are the most tax efficient way to pay your director shareholders. Dividends aren’t eligible for R&D relief so if these individuals are performing R&D work, it may be more efficient to pay them a higher salary.
- Think carefully before accepting Government grants. Certain types of state aid funding can disqualify an entire project from being eligible for R&D tax relief, which is often greater than the grant itself.
- Don’t be nervous about making a claim. R&D relief isn’t a tax planning scheme; if you’re performing R&D work then you’re entitled to make a claim.
- Use your R&D claim to innovate further. Maintain a market-leading position by using the tax relief to facilitate and fund new industry advancements.
At Champion Accountants, we’ve been working hard to bust the myths surrounding R&D and showcase how accessible the relief is to a large variety of businesses. We offer free consultations to determine whether a project may be eligible for R&D tax relief and will be able to determine whether it’s something to pursue within 15 minutes.
For more information, contact Gill Molloy or David Herd on:
T: 0161 703 2500
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