R&D tax credits are a form of corporation tax relief available to any company in any sector. Created by the Government in 2000, R&D tax credits can provide qualifying companies with very generous cash repayments. This is illustrated by the fact that the average value of a small and medium size company (SME) claim stands at circa. £53,000, per the latest set of Government statistics. The figure is circa. £270,000 for a large company.
Given the significant sums of money involved you would expect every company which could make a claim would be doing so. After all it is free cash that can be used for any purpose. Surprisingly, the truth is far from this.
The claim gap
It is widely accepted that from the pool of companies that would be entitled to make a claim only 20% do so. So, what about the other 80%? Well they miss out on what is often tens and in some instances hundreds of thousands of pounds each year. This is commonly referred to as the ‘claim gap’.
One small mercy is that you can go back in time to make a claim, but only a maximum of two accounting periods. Basically, you have two years from the end of your accounting period in which to make your claim. Let’s say your company has a September year end, then at the date of writing this article you can still make a claim for the years ended September 2017 and September 2018. However, on 1st October 2019 onwards you will no longer be able to make a claim for the year ended September 2017 – it’s gone and so is any cash you could have received.
So what’s the reason why companies do not claim what they are entitled to?
It is largely the result of two factors:
- Not knowing that this relief exists; and
- Not realising that what they do on a day to day basis could qualify.
Despite R&D tax credits being around since 2000 and continually being made more and more generous by each successive government, it still surprises me the number of business owners I meet that are not aware of the relief.
Less surprising, perhaps, is the misperceptions surrounding what does and does not qualify. A commonly held belief is that R&D tax credits are for the Apples and Microsofts of this world. If you do not have a PhD on the payroll and a laboratory on floor 2 you cannot possibly be eligible for this relief, right? This couldn’t be further from the truth.
Some common misconceptions include:
“We don’t do R&D”
Companies don’t need to be involved in laboratory research. Iterative improvements to existing products and processes can qualify. It is surprisingly inclusive.
“We are loss making so wouldn’t benefit”
Companies can still claim and benefit from a cash payment from HMRC even if they make a loss.
“We have received grants so can’t claim”
No matter what type of grant they may have received, a claim can still be made.
“Our project wasn’t successful”
Companies can still qualify regardless of the outcome of the project.
R&D tax credits were created to benefit all companies. Whether you have developed new products, processes, services, software or devices, or just made improvements to existing ones, you could potentially be able to make a claim. Even trying to copy a rival’s breakthrough could potentially be eligible for the relief. What company doesn’t try to continually improve its offerings and processes?
All companies, when in doubt, should speak to a Chartered R&D tax expert. A good advisor would never charge for an initial chat about your business and activities to see if there was anything there. Indeed, at LimestoneGrey we prepare claims on a risk-free basis so there is nothing to pay if you don’t receive a benefit from your claim. LimestoneGrey works with you every step of the way, tailoring the package accordingly to match the support that you need, so you really do have nothing to lose and could potentially secure a sizable amount of money for your business.