Common R&D Tax Misconceptions Every Accountant Should Know About
Many myths need dispelling around R&D Tax Credits and how to claim. Don’t let your clients miss out.
Tens of thousands of pounds could be going unclaimed
Investing in a company’s future growth and development not only benefits the company itself but the wider UK economy as well. That’s why the government launched the R&D Tax Credits scheme back in the early 2000s as a way to incentivise businesses by helping with the costs.
Businesses are naturally cautious when it comes to investing in innovation, particularly during these challenging times. However, the resulting tax relief that results from an R&D Tax Credit award can be worth tens of thousands of pounds. This cash can seriously dampen down the financial risks.
Having said that, there are still far too many organisations that are missing out on the R&D tax relief they’re rightfully owed. As a proactive company accountant, it’s well worth considering your current clients and whether they may qualify.
Despite the relief having been around for many years now, plenty of misconceptions about the scheme crop up time and again. Here we’ve sought to lay some of them to rest.
Misconception: R&D Tax Credits are only for techie companies and pharmaceuticals
False. Whilst it’s true that some areas of the economy, such as manufacturing, pharmaceuticals and engineering for instance, are heavy claimers of R&D tax relief, the scheme is actually open to any UK company in any sector.
Misconception: You can’t claim R&D Tax Credits if the project was unsuccessful or abandoned
Wrong again. It’s actually about the ‘journey of discovery’ not necessarily the end product. So as long as a scientific and/or technological uncertainty was addressed that wasn’t clear from the outset, then R&D Tax Credits could well follow. This is even the case of the project failed in its goals or was later abandoned.
Misconception: You can’t claim if your company has made a loss
This is false as well.
Loss-making companies can in fact claim R&D Tax Credits as long as their project meets the criteria (see our R&D Tax Credits page). What does make a difference however is whether the company is claiming using the SME branch of the scheme or RDEC.
SMEs that have made a loss can receive between 14.5% and 33% of their qualifying R&D expenditure back, whilst bigger loss-making companies or those that received previous state aid can attract relief totalling 9.7%. Instead of the relief being set against Corporation Tax, for loss-making companies it’s administered as a set of lump sum payments instead.
Misconception: Work completed by a subcontractor can’t be included in a claim
We hear this one a lot and it’s simply not true. Product development that has been outsourced to subcontractors or partners happens frequently with smaller companies as they seek to pool resources and collaborate with others. Costs incurred through working in this way can typically be included in an R&D Tax Credit claim, however, the company’s size will again come into play here.
Misconception: Configuring an existing IT package constitutes R&D
Wrong. Simply building an off-the-shelf IT system that’s readily available on the market won’t qualify for R&D Tax Credits. Only IT projects that truly advance modern computer technology or break new ground are eligible for the scheme. There are however some grey areas here, which is again why it’s worth using the Tax Cloud portal or speaking to our team.
On this topic, you may also find our recent blog Software Projects That Qualify For R&D Tax Credits useful.
Misconception: There’s a minimum threshold a company must have spent on R&D to qualify
No. There’s no minimum (or maximum) amount that needs to have been spent on R&D in order to make an R&D Tax Credits claim. However, it’s fairly obvious where this misconception has come from.
Prior to April 2012, a minimum claim threshold existed which was set at £10,000. However, the threshold has now been scrapped, so even the smallest of claims will be considered. Good news for SMEs and start-ups in particular.
Misconception: The claims process is fairly straightforward - especially after the first time
Sadly not - which is why even the most experienced of accountants shouldn’t tackle it alone.
Each of your clients’ eligible R&D projects and costs will be unique, and whether a certain type of expenditure can even be included at all isn’t always obvious. HMRC guidelines can change quickly, making it incredibly easy to over or under claim. There’s also of course the technical report to consider, and by going it alone there’s nowhere to turn for advice. Even finding the time and resource in itself can be a massive headache when an accountant’s work is already so diverse.
In real terms, attempts to complete an R&D tax relief claim without professional guidance are highly likely to fail. Any anomalies will be investigated by HMRC, leading to additional stress, costs and delays neither you nor your client will want.
How Tax Cloud has helped accountants across the UK claim the R&D Tax Credits their clients deserve
At Myriad Associates (developers of the Tax Cloud portal) we understand just how important it is to attract clients, retain them, and ensure complete satisfaction. The Tax Cloud portal is the ideal opportunity to expand your practice’s R&D tax claims function without taking on extra staff. Not only does this enhance your reputation with your clients, but is likely to draw in new ones too.
Backed up by years of technical knowledge and robust processes, the Tax Cloud portal for accountants will guide you through your clients’ claim from start to finish. It’s an effective online tool designed to take the time and hassle out of claiming R&D Tax Credits on your clients’ behalf. It even fully integrates with Xero and there’s a generous partner package on offer too.
With our 100% proven track record of success you can rest assured that your clients won’t miss out. It’s also less costly than our full Myriad service, and as you work your way through our expert team are on hand if you need us.
If you have a client in mind that may qualify for R&D Tax Credits, why not sign up to the Tax Cloud portal for accountants today. It’s free to get started, and if you’d like to discuss anything please do get in touch using our contact page.