What's the difference between 'Notified State Aid' and 'Non-Notified State Aid' regarding R&D Tax Credits?
So your client’s company has undergone an innovative project or two recently that’s made some scientific or technological advance in their field. But did you know they can actually claim financial help from the government towards the costs?
Even some of the most experienced, highly skilled business accountants still haven’t heard about R&D Tax Credits or how their clients can claim. At Myriad Associates we only deal with research and development (R&D) tax relief, and no other accountancy function at all. This makes us experts in our field with almost two decades of experience in putting together accurate, optimised claims. We also work not just alongside businesses but accountants too, so you know your clients are receiving the very best, up-to-date service.
R&D Tax Credits: A recap
Research and Development (R&D) Tax Credits were lunched in 2002 for incentivising companies to innovate via the tax system. Even these days many companies still miss out, often because they wrongly believe their projects are too small or that their company won’t be eligible. In fact, the requirement is simply to make an appreciable improvement to technology or science, either by creating a new product, process or service or by improving an existing one. That’s it.
How does it work?
Qualifying companies can receive extra tax relief on relevant R&D costs using the scheme. It works by reducing taxable profits or increasing tax losses. These losses are sacrificed to HMRC in return for a cash payment.
The amount of relief on offer is incredibly generous. A small/medium sized company incurring eligible expenditure on wages and materials could save around 33 pence in every £1 spent on qualifying R&D work. Claims can also go back up to 2 years, which is particularly helpful to companies claiming for the first time.
Capital Allowances are also available at a rate of 100% on capital expenditure on R&D activities. This means full tax relief in year one on expenditure which may only otherwise bring about relief of 18% per annum, or in certain circumstances, no tax relief of any kind until sale.
What projects are eligible for R&D tax relief?
Essentially, in order to be eligible for R&D Tax Credits, a project must seek to achieve an advancement in technology or science by resolving a technological or scientific uncertainty.
This may include projects which:
- Develop a product, process, material, device or service which then increases overall knowledge or capability in a field of technology or science (i.e it boosts knowledge in the wider field, not just the company carrying out the R&D)
- Involve an appreciable improvement or upgrade to an existing product, material, process, service or device through technological or scientific changes; or
- Use technology or science to enhance the effect of an existing product, process, service, device or material in an appreciable way.
It’s important to note too at this point that the project doesn’t necessarily have to be successful in its goals. R&D Tax Credits can still be received in respect of the scientific or technological research that took place; it’s about the journey if you like, not the destination.
All UK companies, of any size in any sector can apply
It’s not just about big pharmaceuticals and people in white lab coats. If your client has a company in any industry that has carried out technological or scientific research that’s required any expenditure then they may well be eligible.
How much can be claimed however depends on a couple of specifics, namely whether the company claims under the SME branch of the scheme, or RDEC.
Briefly, a company should apply for R&D tax relief if:
- It employs less than 500 people
- A turnover of under 100 million euros or
- A balance sheet total of less than 86 million euros
Most companies come under the SME scheme, however if they have received state aid then they’ll need to apply using the RDEC scheme regardless of size, turnover or balance sheet. You can find out more on our blog: Everything you ever needed to know about RDEC.
So back to our blog title - what’s the difference between 'Notified State Aid' and 'Non-Notified State Aid'?
When working out whether a previous grant is classified as state aid or not, it’s helpful to consider the following questions:
- Was the aid offered by the UK government or another EU member state?
- Did the aid affect any aspect of trade between member states of the EU?
- Did receiving the aid threaten or distort competition?
If your client can answer ‘yes’ to one or more of the above, then the funding they’ve previously received is classed as state aid. However, all is not lost because not all state aid requires notification to the EU. Therefore if no notification is required then the company can still use the SME branch of the R&D tax relief scheme.
So when else might state aid in fact be non-notified state aid? A common example concerns de minimis state aid. Small amounts of funding (amounting to less than €200,000 over three years per recipient) - don’t need to be notified as the EU considers relatively small amounts to have limited effect on competition and trade. For companies that have received de minimis state aid, only the amount received during the accounting period needs to be extracted and enhanced under the RDEC scheme. Any eligible expenditure left remaining after that will come under the SME branch.
Speak to the R&D tax relief experts at Myriad Associates
The key message here is that just because a company has received previous state aid, it doesn’t automatically exclude it from claiming R&D Tax Credits. But as you’re starting to see, the criteria and application process is complicated and it’s easy to succumb to the pitfalls.
At Myriad Associates we will work with you and your client to make sure their claim is fully optimised and accurate. This frees up your time to help them with everything else.
Call us today on 0207 118 6045 to take advantage of our professional, no hassle service or use our contact form.
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