Legislation was introduced some time ago now with the aim of encouraging businesses to increase investment in innovative activities, R&D tax reliefs offer significant benefits for businesses advancing science and technology. These reliefs significantly reduce the corporation tax bill, or if loss – making can generate tax credit repayments.
However it is estimated that 10% of eligible businesses are claiming R&D tax relief and many others are failing to apply for the full amount they are entitled to. It may therefore be that a lack of understanding about what qualifies for R&D relief that may be preventing businesses from receiving the credit to which they are entitled. We can help you determine whether you are eligible.
Generally you may be able to claim this relief if your projects “seek to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty – and not simply an advance in its own state of knowledge or capability.”
While R&D may associate with “white coat” scientific research, such as that undertaken in the pharmaceutical industry, the reality is far different. It is also for “brown coat” research seeking to create or improve processes, products or services, or advance technical knowledge, within a range of industries an example of qualifying activity includes the development of new software for use in-house.
The lack of clarity around what qualifies as R&D for the purpose of claiming tax credits means that many businesses may simply assume incentives do not apply to them or, if they do make a claim, may fail to apply for the full amount available. This may be because businesses only consider core R&D activities and fail to account for pre-project or associated work which also meets with HMRC’s criteria.
Additionally, failure to keep accurate records can often result in some qualifying expenditure being overlooked when it comes to applying for tax credits. Keeping accurate timesheets from the initial stages of an R&D project can help businesses to track expenditure as they go along, ensuring that all costs incurred are incorporated into a claim to HMRC. It is also important to ensure that a business is aware of all grants and funding that is received and the impact this has on any claim made.
Ultimately, the key to making and in the case of enquiry defending a successful R&D claim is to convince HMRC that the business both understands its definition of what activities and costs qualify, and that its R&D project meets these requirements fully.
We can support you in making R&D claims. If you would like any further information or advice in relation to R&D claims please do get in touch with Sue Stephens.