The Research and Development (R&D) Tax Credit scheme is a widely misunderstood initiative that most eligible businesses are missing out on!
Why?
There’s a lot of incorrect information out there that paints an inaccurate picture of R&D tax relief. Many of our clients come to us having previously been misinformed of their eligibility, or how the scheme works.
To make the most out of the UK’s generous scheme, we’re on a mission to disprove the myths that surround r and d tax credits. By stamping out these misconceptions, we want to share just how accessible R&D Tax Credits are, and how they can supercharge your business year after year.
🚀 R&D Tax Credits are only offered to a few select industries.
This couldn’t be further from the truth!
For many, the first thing that comes to mind when they hear the term ‘research and development’ is a group of scientists in a laboratory, trialling new medical procedures.
While the medical sector is largely benefitting from this scheme, all industries are eligible to claim R&D Tax Relief!
The defining trait of an eligible business is that it must be undertaking activities that innovate and introduce new products, processes, or services – or improve existing offerings.
This can occur across manufacturing, engineering, fashion & textiles, hospitality, property, and software - to name a few.
Recent data from HMRC reported that the most prevalent sectors claiming r and d tax credits are:
Information and Communication – 20% of total amount claimed.
Manufacturing – 25% of total amount claimed.
Professional, Scientific and Technical – 24% of the total amount claimed.
Shockingly, statistics also showed that the agricultural industry only accounts for 0.8% of all r&d tax relief claimed under the SME scheme!
Disproving the eligibility myth is vital for diversifying funding support for innovation across the country.
📈 Companies can only claim R&D tax relief once their product, process or service is generating profit.
Not even close!
All innovative companies can claim research and development tax credits, regardless of whether they’re loss or profit-making.
The only thing that a business’ financial position does determine is how much of their R&D spending they can claim back.
Research and development tax credits permit profit-making businesses to reclaim up to 21.5% of total R&D eligible costs, in the form of a tax credit.*
However, loss-making companies are entitled to claim up to 27% of total r&d eligible costs, which is paid directly, in cash, into your bank account!
That’s right, not only are loss-making businesses eligible for r&d tax relief, but they receive the greater tax benefit!
💰 You can’t claim R&D Tax Credits on projects that are wholly or partially grant funded.
Wrong again – you can! But only under the following circumstances.
The requirement for using Grant Funding and R&D Tax Credits on the same project revolves around whether your grant is classified as ‘notified state aid’, which is government funding regulated by the European Commission (EC).
Under EC regulation, startups and SMEs aren’t permitted access to more than one type of notified state aid for the same research and development project.
This is so that a limit is placed on the amount of financial support each country can distribute, to avoid biases across the continent.
If the grant you received is classified as notified state aid, such as the Innovate UK Smart Grant, you won’t be able to file under the more conventional SME R&D Tax Credit Scheme.
But - the RDEC R&D Tax Credit Scheme is compatible with projects funded by notified state aid, so businesses that have benefitted from a government grant can still access r&d tax relief.
Under the RDEC Scheme, your potential claim size is capped at 13% (before corporation tax). However, since you’re reclaiming free money, this is still a fantastic route to consider.
You can read more about how research & development tax credits and grant funding can work together by clicking here.
📆 You can only claim R&D Tax Credits for your previous year’s spending.
Nope – though each individual claim must reflect one financial year, the rule of thumb is that you can claim back as far as two years.
This is great news if you’ve been conducting research and development for a couple of years, but have only recently heard of r & d claims.
So, let’s say your company has a financial year-end of 19th December 2021. This means that up to 33% of R&D spending across 2018/19 and 2019/20 can be reclaimed! As of April 2023, the highest amount that loss-making businesses can claim up to is 27%, in line with the Spring Budget announcement.
In rare cases, you can claim R&D Tax Credits back further than two calendar years, or have your deadline brought forward to less than two calendar years. This occurs if a business lengthens or shortens its financial year – which we’ve seen become more popular throughout the pandemic.
Other extremely rare circumstances can also impact how far back you can claim R&D tax relief. If you want to learn more, our previous blog delves into the details.
⏱ The process of completing and submitting R&D Tax Credits takes months.
No! Not with us, anyway.
We built Claim Capital to disrupt the status-quo of traditional R&D Tax advisors – who typically take far too long to complete a claim as to justify their hefty, percentage-based fees.
Our end-to-end R&D Tax Credit Service is a quick and easy process.
Our R&D Tax Specialists hold over 20 years of technical experience in delivering successful and maximised claims. This allows us to complete and submit your r and d tax credit claim within 3-5 days of receiving sufficient information.
With Claim Capital, you can receive your maximised tax benefit faster, and maintain the momentum of growing your business.
Now that we’ve busted the most common myths about R&D tax credit claims, we hope you can see just how valuable this scheme can be for innovative businesses.
If you’re now reconsidering your eligibility, or have realised your current R&D Advisor is overcharging and underdelivering – get in touch with our team.
We’d be happy to organise a free r & d claim consultation, with no strings attached.
*These are the updated figures in line with the new legislation announced in the April 2023 Spring Budget.
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