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Why Every Start-up Should Understand R&D Tax Credits

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Starting a business is not easy. Taking the plunge to set out on your own takes courage, commitment, and a reasonable amount of self-confidence.

It’s also a financial risk and carries with it a high chance of failure – according to the latest ONS figures, more than half (56%) of Welsh businesses fail in their first five years.

So anything that helps a start-up survive those difficult early years has got to be welcome. And for those that are developing innovative ideas, claiming R&D tax credits could be a lifesaver.

Why do so many start-ups fail? There are many reasons, but especially for science and technology companies there can be a long period of product development before the company sees any revenue.

And this pre-revenue period can often turn out to be a lot longer than expected if the development proves to be more difficult than anticipated. In these circumstances, any financial help a company can get can be a lifeline.

It’s true that some product development work does not qualify for R&D tax credits. The Government has set particular criteria that has to be met.

The R&D has to be in the science and technology field, so something that was looking at how consumers might respond to a new product or service would probably not qualify (e.g. market research).

It has to be aimed at resolving some real uncertainty about whether or not some advance or new idea might work. If it’s something that any reasonably competent professional in that field could work out fairly easily it probably wouldn’t do.

And it has to advance industry level knowledge, not just be something that was particular to your own company. At the same time, it has to be related to the trade your company is in.

That might sound like a difficult set of conditions to meet. But never assume that the work you are doing doesn’t qualify for relief. Always ask an expert – they may be able to identify some part of what you are doing that can attract help.

And if you are just a subcontractor doing work that is a small piece of a larger R&D project, you may still get relief. Crucially, the work does not have to have been successful to qualify.

What does the relief cover? The costs you can claim for include salaries, national insurance and pension contributions of staff directly involved in the R&D or indirectly supporting it, including supervisors and managers.  You can also include agency staff and subcontractors.

It also includes materials used, a proportion of your utility bills and any software purchased. The design, construction and testing of prototypes is also covered.

Most start-ups would come under the SME scheme, which allows you to deduct 130% of your qualifying costs from your annual profits, on top of the normal 100% to make a total of 230%.

If the company is loss making it can claim 14.5% of the loss as a tax credit.  This equates to up to 33p for every £1 spent on R&D as a cash payment from HMRC.

No start-up doing R&D work that might qualify can afford to ignore that sort of assistance.

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Lime R&D is not your average tax consultancy. As the only firm of Chartered Tax Advisers dedicated to R&D tax credits in Wales, we pride ourselves on our refreshingly unique approach to Research and Development (R&D) tax credits which makes the claim process simple and straightforward.

We specialise exclusively in R&D tax credits – this level of specialism provides us with a more thorough understanding of the tax legislation, HMRC practice and how it could impact your business. Based in South Wales, we are passionate about helping Welsh companies from all sectors successfully claim what they are entitled to, which often equates to tens of thousands of pounds or more.

We appreciate that the claim process can be a little overwhelming. There is so much information available that it is hard to know where to begin. Our Chartered Tax Advisers provide a complete R&D service ensuring your claim is fully optimised, providing you with peace of mind and confidence, whatever your industry, size or structure.

More companies qualify for the relief than you may first think. You do not need to be undertaking cutting edge research to make a claim – this is the biggest misconception surrounding R&D tax credits. You simply need to demonstrate that your company has undertaken work which was not routine or easy to achieve. Our experienced advisers can help pull all the necessary information together and present it in the correct way.

All this can be done risk free – if you do not receive a benefit then Lime R&D won’t charge you anything! Contact us to speak to one of our specialist Chartered Tax Advisors.

 

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