Why Knowledge Around R&D Tax Relief Is As Important For Your Clients Now More Than Ever

1st May 2020
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The huge economic impact of the coronavirus COVID-19 pandemic on global industries such as travel, manufacturing, hospitality and tourism is stark. In fact travel and tourism alone accounts for over 10% of global GDP, employing more than 50 million people worldwide. But regardless of sector vast swathes of people have been affected financially, particularly those who are self-employed or whose work is seasonal. Although the government has tried to help with its various measures to guarantee wages and safeguard jobs, for many UK businesses survival is at best uncertain.

Why R&D Tax Credits can be a lifesaver for your clients

First off it’s essential that as your clients’ trusted business accountant you yourself are as clued up as possible about what the R&D Tax Credits scheme is and what it can offer. Despite the fact that it has existed for almost 20 years, too many businesses are still missing out on what can be thousands of pounds of valuable finance so vital at this time.

The R&D Tax Credits scheme works by allowing a company to claim a reduction on its Corporation Tax bill in respect of research and development (R&D) work it has recently undertaken. For companies that have made a loss, there is the option to receive the relief as cash instead.

Why R&D Tax Credits are so valuable to your clients

It’s no secret that despite a raft of measures from the government designed to help UK companies, the effects of COVID-19 have been incredibly damaging for many. But the real beauty of R&D Tax Credits is in the detail:

The relief is exceptionally generous

For SMEs, it can be worth as much as 33 pence for every £1 spent on R&D work, and for those claiming under RDEC (typically larger companies) it’s worth up to 12% of their qualifying R&D expenditure. Find out more on our blog: R&D Tax Credits: What's the Difference Between the SME Scheme and RDEC?

The scope of eligible projects is incredibly broad

In essence, as long as your client’s company has either developed a new product, process or service from scratch, or appreciably improved an existing one, then the work is likely to attract R&D Tax Credits

Even if the project failed, R&D Tax Credits can still be claimed

This is because it’s about the scientific and technical research that was undertaken, rather than the end product. The whole ethos behind R&D Tax Credits is that it broadens scientific and technical knowledge in the field which the company operates in so that it’s beneficial to all.

The types of R&D costs that can be claimed for are many and varied

They include:

  • Staff costs such as wages, salaries, overtime payments and employers NIC and pension contributions
  • Overheads used up in the R&D project itself, like heating, lighting and materials
  • Externally provided workers. This would be staff costs paid to an external agency for people who directly worked on the R&D project. Relief is limited to 65% of the payments given to the staff provider. Special rules also apply if the company and staff provider are connected in business.
  • Subcontractors. Subcontracted R&D has different rules depending on whether the company is a SME or a larger organisation. Again, certain rules apply if the companies are connected.
  • Certain types of software
  • Payments made to volunteers for any clinical studies

Other key points to note about R&D Tax Credits

In addition to the above, it’s important to remember that if your client’s project has involved any advancement in science or technology then a claim could well be on the cards. The relief is about recognising that a financial risk has been taken in such an advancement.

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