Setting up a limited company for R&D tax credits

Ownership of a limited company by an LLP/partners so we can take advantage of R&D tax credits

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Hi

We are currently developing some software that we hope will fit the criteria for R&D tax credits.  Our issue is that we are currently an LLP and cannot claim them.  So we are considering setting up a ltd company to do this development work through.  

Does anyone have any experience with this?  

We are wondering about whether this company should be owned by the partners or the LLP itself.  Also, how to structure the work going through the LLP vs the Ltd co.  

Replies (7)

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By David Ex
16th Apr 2024 17:18

If this is the company you’re planning on preparing accounts for without external advice, I suspect the specific issues around R&D advice might make that a suboptimal solution.

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By Sarahread
16th Apr 2024 17:24

Thanks. We would absolutely get external advice on the R&D credits. Our current accountancy practice cannot provide that anyway so I will need to seek external consultancy on the claim whatever we do.

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By Sarahread
16th Apr 2024 17:24

.

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Replying to David Ex:
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By Sarahread
16th Apr 2024 17:25

.

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By Matrix
16th Apr 2024 17:35

I have looked at this before, please share how you get on: https://www.accountingweb.co.uk/any-answers/rd-tax-credits-16

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By Aarti Varia
16th Apr 2024 20:26

Hi, I have a client with this scenario. The limited company is a subsidiary of the LLP. In this instance all staff are employed by the LLP and the related costs recharged to the limited company and claimed there. This is the same as the other costs incurred on software and subcontractors. However it is cleaner to have the staff and other contractual arrangements with the limited company directly and the costs going through the company directly to avoid HMRC thinking that it’s the LLP’s project rather than the limited company’s. Additionally unconnected subcontractor costs can only be claimed if the contractual arrangement is between the subcontractor and the claimant company rather than the contract being between the LLP and the subcontractor, with the LLP recharging the costs to the limited co. Happy to have a detailed chat with you on this. Please feel free to email me ([email protected]) or message me on LinkedIn. Best regards, Aarti Varia

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By FactChecker
16th Apr 2024 20:42

Just two immediate thoughts:

1. By default I'd expect any software developed by the limited company would be owned by the company (not the LLP or individual partners) ... so, a bit like when people rush to buy property through a company, you need a *much* wider look at the whole picture of intentions than just the (relatively) immediate R&D credit.

2. Software is one of the hardest areas in which to meet the criteria for R&D TCs ... especially under the new 'regime'.
It's not enough to end up with a new application or a better version of existing applications, it has to be truly innovative (which usually means at the code-level structure & tool-kit, or some such).

My simplistic acid-test is would the company have invested in this research (which by definition comes before prototyping or development) *without* the carrot of R&D TCs?
If yes, then they are likely to be clear as to why they are doing it and why it may become a 'market disruptor' - so all you have to do is to check all the scheme T&Cs in advance (to make sure you're likely to be successful in your claim and will be capturing the required data along the way).
If not, then a deeper rethink is in order - not because it's not going to be a valid claim but because the risks of being rejected are higher (so the story needs to be more cohesive).

EDIT: I'd also endorse the point made by Aarti Varia regarding direct employment by the limited company - so the LLP need to think about funding. To have any chance of success, there must be no room for HMRC to 'join the dotted lines'.

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