Could your client be due an R&D tax rebate?
Are you a business accountant with clients who have carried out technologically or scientifically innovative work recently? Then this is for you.
Any UK companies that have completed research and development (R&D) projects in any capacity are likely to be eligible for R&D tax relief against the financial costs involved. Known as the R&D Tax Credits scheme, it’s essentially a Corporation Tax relief designed to reduce a company’s tax bill, or if a company is loss-making, supply a cash rebate courtesy of HMRC.
R&D Tax Credits can be applied to any project that seeks to gain a specific advancement in any field - even if the project itself is ultimately unsuccessful. This makes it a very accessible relief for a massive number of companies as the scope to claim is so broad. Over the years we’ve been in business, we’ve found that many of our clients were unaware that the scheme even exists, and those who did often assumed it doesn’t apply to them. But it’s not just about laboratories and white coats; almost any company in any sector can apply.
How much can companies claim back?
The amount claimable depends largely on the size of the company. There are two main types of R&D relief to match the company’s size and whether the project has been subcontracted to the company or not.
Smaller companies will need to claim under the SME R&D Relief Scheme. However, to do this, the company must have:
- Under 500 employees
- A turnover of less than 100 million euros or a balance sheet of a maximum 86 million euros
Linked companies and partnerships may also need to be included when working out if your client is an SME in this context.
In terms of the amount that can be claimed, SME R&D Tax Credits allow companies to:
- Deduct an additional 130% of their eligible costs from their annual profit, over and above the usual 100% deduction. This makes a total 230% deduction.
- Claim a tax credit if the business has not turned a profit, worth as much as 14.5% of the surrenderable loss.
What about larger companies?
Larger companies must claim under the Research and Development Expenditure Credit (RDEC) scheme. SMEs (and larger companies) who have been subcontracted to complete R&D work by another large company can also apply for their R&D tax relief under the RDEC scheme.
Larger companies must have:
- Over 500 employees
- A turnover of more than 100 million euros or a balance sheet of over 86 million euros
The RDEC is a tax credit worth 12% of a company’s applicable R&D expenditure. It has been at this rate since 1st January 2018 (previously it was set at 11%).
Which sectors are most likely to claim R&D Tax Credits?
When you take on a new client account, it’s worth mentally flagging up the sector in which their company operates. Although the scheme is open to all UK companies that are subject to Corporation Tax - and the criteria is very broad - some sectors by nature carry out far more innovation work than others. These include companies working in:
- IT and Communications
- Administration and support
- Technical, scientific and professional
- Wholesale and retail
This is by no means an exhaustive list, but if any of your new or existing clients work in these fields it’s well worth discussing any R&D work they may recently have undertaken, or plan to undertake. If not, they could easily miss out on Corporation Tax rebate worth thousands.
I have a client in mind that I think may be eligible. How do I know if their project qualifies?
If their R&D project aims to make any advancement in technology science - which directly contributed to the growth and success of the company - then it’s likely to be eligible. Additionally, if your client had to use extra resources or put a team of employees together in order to complete the work, these expenses may also be covered. R&D Tax Credits may well even be payable if the company started an R&D project but later abandoned it, or if it failed.
We’ve often helped clients make a successful R&D Tax Credit claim after they have completed the following work - do any of these apply to your client?
- Developing software that ensures compliance (particularly if the industry is highly regulated)
- Developing an advanced Content Management System
- Creating software to run the company more efficiently
- Building hardware that operates a key part of the company
- Creating a platform to more effectively use data within the company
When should a claim for R&D tax relief be made?
Claims for R&D tax relief should be made as part of the company’s Corporation Tax return each year. The limit to claim this is two years after the end of the relevant accounting period.
We recommend a company submits its CT600 first, then makes an adjustment to it to reflect the R&D Tax Credit claim. There are a number of reasons for this, and we’ve recently published an article on it which you may well find useful. See our How to fill out a CT600 correctly for an R&D claim article.
Don’t let your client miss out on the Corporation Tax rebate they’re entitled to
With R&D tax relief available on a vast range of innovative projects, it’s likely that companies took on innovative activities they are entitled to claim for but don’t. With such generous rebates available, missing out could cost your client some serious and much needed cash.
With many factors to consider - and an application process that isn’t exactly straightforward - it’s essential that accountants understand exactly who can claim, and how to do so.
How the Tax Cloud portal works alongside you
We deal solely with R&D tax relief and absolutely nothing else. It’s what we do.
We’re not interested in poaching your client from you or taking over their accounting; instead we want to work alongside you to provide the most accurate, professional R&D tax relief advice possible for them. Our Tax Cloud portal also contains an area specifically for accountants, to help calculate entitlements and offer support, so you can get on with the day job.
To ask a question or find out more about working alongside us, please feel free to call 0207 118 6045 or use our contact page and we’ll get right back to you.