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Are you eligible for R&D Tax Relief?


Posted on 8 December 2016

Many businesses are unaware of the potential benefits of R&D tax credits, mistakenly believing they are difficult to qualify for or that they don’t apply to their business! Some blame could be laid at the door of the former Department for Business, Innovation and Skills whose rather broad definition is somewhat confusing:

‘Research and development takes place when a project seeks to achieve an advance in science or technology through the resolution of scientific or technological uncertainty.’

Reading that statement you would be forgiven for thinking that if you were not a scientific company then it does not apply to you! So what does qualify as research and development for tax purposes?

  1. New product development
  2. New process development
  3. New service development
  4. Changes or modifications to an existing product
  5. Changes or modifications to an existing service
  6. Changes or modifications to an existing process
  7. Internal projects
  8. Successful projects
  9. Unsuccessful projects
  10. R&D undertaken on behalf of a client.

It is point 9 that may surprise a lot of people, but, if you think about it, you need the unsuccessful projects to propagate the successful ones. The unsuccessful projects are still taking up valuable resources, when trying to reach your business’s ultimate goal.

It is important to note that the government intends these incentives to stimulate R&D in the business sector. For the companies that make use of them, R&D tax credits have become an important part of their overall financial position.

HMRC, however, has reported that only one in five companies has made use of this tax relief, with 80% of those companies who receive it regarding it as important to their financial planning.

So why aren’t businesses claiming? In a survey undertaken by Management Today the results were revealing. Of those businesses surveyed only 20% had claimed R&D tax credits. However:

  • 94% are considering innovation as an essential, high or medium priority.
  • 89% intend to innovate in the next 3 years.

The reason for the claim gap seems to be lack of knowledge as to whether their business is eligible, how much the credits would be worth to them or how to go about claiming. Many, wrongly feel it will be a time consuming process, but with the right advisor the process is very simple and very worthwhile financially.

The key points to consider before claiming are:

  1. Be open minded as to what qualifies as R&D. The definition is purposely broad so as to encompass a wide range of sectors.
  2. Don’t be afraid to ask for advice if you are uncertain what qualifies as R&D.
  3. Do consider R&D tax relief as a potential valuable means to improves your cash flow and aid your business growth.

In fact a client recently benefited from the R&D tax credits in a business that would not have previously been thought of as eligible. The client hired out a range of temporary structures such as exhibition halls, hospitality and trade stands for the UK outdoor show and event marketplace. The company applied for two advances in their range.

  1. Researching suitable demountable containers across European manufacturers and developing visible signage for them that would withstand the loading/unloading and flat packed transportation procedures.
  2. Developing a lightweight, hard-walled sectional stable which can be safely stillaged and repetitively erected, whilst withstanding damage from horses and manual handling. This product was a development of existing products already provided by the company.

In both these cases the developments could be considered as standard additions to an existing product range, and would not immediately spring to mind as eligible for R&D tax credits. However, our client applied for, and successfully received, R&D tax credits for both developments. The company was effectively reimbursed for a substantial amount of costs incurred whilst developing their product range.

You can find out whether your product, service or process developments are eligible for tax relief by contacting Smith Cooper.

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