Brought to you by
myfirmsapp

Myriad Associates helps businesses maximise tax reliefs.

Save content
Have you found this content useful? Use the button above to save it to your profile.

Clients Should Be Savvy With R&D Losses For Maximum Relief Benefits

12th Mar 2020
Brought to you by
myfirmsapp

Myriad Associates helps businesses maximise tax reliefs.

Save content
Have you found this content useful? Use the button above to save it to your profile.

The government is keen to get the message out about the benefits of R&D Tax Credits, but there’s still a long way to go. For a broad mix of reasons, many companies still aren’t applying, but with average R&D claims worth around £50,000 can your clients afford to miss out?

As a trusted accountant, it’s down to you to not only flag up where R&D tax relief opportunities may have arisen, but how to best apply for it. That’s where we come in.

What do R&D Tax Credits mean for my clients’ business?

The R&D Tax Credit scheme allows companies to claim back some of the costs they’ve incurred in research and development projects. It could be that they’ve designed and built a brand new product, service or process, or they’ve enhanced an existing one.

Simply put, in order to claim R&D Tax Credits, your client’s company needs to:

  • Pay Corporation Tax as a UK limited company
  • Have undergone qualifying R&D work that meant taking a risk of some kind
  • Have undergone qualifying R&D work that looked to solve a particular technological or scientific problem (one which can’t easily be solved by a competent professional in the field)
  • Have spent out money on this R&D work

What activities are eligible for R&D tax relief and how much is it worth?

When an R&D Tax Credit application is made, there are a large number of different expenses that can be claimed for. As a guide, these include:

  • Staff salaries, wages and expenses
  • Employer’s NICs and pension payments
  • Materials and consumables used up in the course of the R&D work
  • Money paid to subcontractors, freelancers and volunteers for clinical trials
  • Certain types of software

In terms of claim values, companies can receive up to 33p for every £1 spent on innovation. The relief is offered either as a relief on a company's Corporation Tax liability, or as a cash lump sum if the company has made a loss.

Yes, companies that have made a loss are still eligible to claim R&D Tax Credits on their innovative projects

But how can they be ‘savvy’ with those loses?

Well, this is something we have a lot of experience with here at Myriad Associates, and one thing we can do is ‘move around’ your losses to maximise your tax credit return. By surrendering their losses, even the most unprofitable of companies can benefit from cash courtesy of HMRC.

Whether this mechanism is the best for your client and their business depends on a number of factors however, and this is something we can work through with you. Typically though, it’s often a good idea to carry the loss forward and offset it against future profits. This then attracts a rate of 19%, rather than surrendering it immediately at a 14.5% rate. Bear in mind though, this will only work if your client strongly anticipates that their company will make a profit in the years to come. If they don’t think this will be the case and expect the tax losses to continue, it’s then well worth surrendering the current loss instead. Moving losses around isn’t always straightforward however, so let us help you help your client to get it right for maximum return. And of course, a maximised return means more money for your client (and they’ll love you for it!)

What can the money gained from R&D Tax Credits be spent on?

Anything your client chooses! Some businesses decide to pay off debts or buy more materials. Many however reinvest it into the company, purchasing machinery or taking on new staff. There’s no minimum claim value either, so even the smallest of companies with minimal R&D expenditure can take advantage of the scheme.

Be careful though

All this seems straight forward, but actually the process of claiming R&D Tax Credits can be difficult - especially if your client hasn’t claimed before. Even as a competent, experienced accountancy professional yourself, it’s easy to miss a detail out or make a mistake. Over-claiming or under-claiming can be a real problem, and with this being such a niche tax area it’s strongly recommended you work alongside specific R&D tax advisors like ourselves.

This is because essentially the application process for R&D tax relief is made up of multiple parts. The two key areas however are in demonstrating the accountancy side of the project - i.e the actual data and figures - and also the narrative report. This narrative report needs to exactly adhere to the criteria as set out by HMRC, and be written in such a way that it’s professional and thorough but also fairly simple to understand. It also needs to not merely list the R&D work that’s taken place, but also to make the case as to why your client believes it qualifies for the money. Get either of these things even slightly wrong, and HMRC are likely to come back to your client and ask questions, which will hold up their claim. Furthermore, even after these questions are answered, if HMRC still believes there have been inaccuracies - whether accidental or not - then it will likely take steps to launch a wider tax investigation. This can mean serious stress, not to mention money and people power, especially if they end up with a fine.

So… in case we haven’t stressed this enough: it’s highly recommended you work alongside us when helping your client to make a claim for R&D Tax Credits.

Get in touch

The team at Myriad Associates has two decades of R&D tax relief experience, dealing with no other area of accountancy at all. This makes us highly specialised in what we do, and we will work with both yourself and your client to put together a fully optimised, savvy, watertight claim. We’re proud of our 100% success rate, and have multiple offices in the UK and Ireland.

If you’d like to speak to us about what we can do, our R&D accountants and specialists are on hand to help. Simply call 0207 118 6045 or use our contact page. Don’t forget to read up more on our R&D Tax Credits page too.