R&D Tax Credits Explained — What Are They? Who is Eligible?
“Grasping the potential of R&D Tax Credits from the outset can be a great boost for start-up founders.”
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We sat down with Maxime Kryvian & Miles Timothy the Co-founders and Directors of R&D Expert Ltd. They provide help to companies that wish to apply for R&D tax benefits. Read more to find out more about this credit scheme, if you are eligible and how you can apply. Please note this scheme is applicable to unsuccessful projects as well.
What is the R&D Tax Credit Scheme and how can it help founders and start-ups?
The R&D Tax Credit scheme is a funding initiative by HMRC, created to encourage and support SMEs who invest in Research and Development. It is available to companies across numerous sectors, including but not limited to digital technologies, food & drink, cosmetics, engineering, and manufacturing.
The scheme is designed to enable companies to retrieve a portion of invested resources, typically from 25% to 33% of the money spent on R&D projects, including relevant salaries, sub-contracted costs, and other expenditures like consumables and software costs; a claim is limited to their last two financial years. This can amount to substantial cash repayments and tax savings from HMRC that can be directly re-invested into further rounds of R&D or other commercial endeavors.
R&D Tax Credits are very helpful for early-stage start-ups as they represent a substantial financial boost to product development., It can also be factored into funding strategies to highlight to potential investors that their investment can potentially be enhanced through this scheme. We have seen many of our clients accelerate their growth year-on-year thanks to the cash injection enabled by the scheme.
So if your company has been trying to appreciably innovate, develop, or add value to a process, product, device, material, or service, it is undoubtedly worth exploring whether you could qualify for R&D Tax Credits.
Is it difficult to apply for and what is the benefit of R&D Tax Credits?
The good news is that R&D claims are typically processed between 6 to 8 weeks from submission, which is relatively quick compared to other public funding programs. The claim itself does require dedicated expertise to ensure that it has the best chance of being approved and to maximise the claim amount.
An R&D claim itself is composed of two key elements: a technical narrative and an accounting report. The technical narrative is a thorough technical report which details the ins and outs of the R&D work undertaken, and this is what HMRC uses to discern your claim’s eligibility. The accounting report must contain specific computations, including all of the potential qualifying expenditures that you are claiming.
One important thing to be aware of when making a claim is the compliance process from HMRC. If there is doubt regarding the eligibility of the work and/or the costs involved with a claim, HMRC can open a compliance check, called an enquiry. Resolving enquiries can take a very long time to complete, and it is a process that requires dedicated and expert resources.
Because of this, we would always strongly advise SMEs to work with specialist R&D firms that possess the required knowledge of the system and have a due diligence process in place. This will ensure claims are robust and stand up to scrutiny, resulting in a lower likelihood of enquiry. Importantly, they will also be well equipped to defend their clients if an enquiry is ultimately deemed necessary.
Has Brexit and the changing landscape following the pandemic affected the R&D Tax Credit Scheme?
The first positive thing to say is that driving innovation in the UK is one of the government’s main goals post-Brexit, so R&D will continue to be invaluable for both UK businesses and the government. Because of this, the government has re-emphasised its support of the R&D Tax Credit scheme in the budget announcement of October 2021.
However, they have also announced that they are reviewing some aspects of the scheme to prevent abuse and improve its efficiency. Some changes will be coming into place from April this year, and other unconfirmed changes have been announced for April 2023.
The most important change to be aware of is HMRC’s increased scrutiny and compliance with R&D claims. They have recently hired 100 new tax inspectors whose role is to focus on submitted claims’ eligibility. As a result of this, we are seeing an increasing number of enquiries being raised. As such, it has never been more important to get the right support when applying for R&D Tax Credits.
What advice would you give to start-ups who are thinking of applying for R&D Tax Credits?
Don’t ignore this opportunity! Over the years, we have seen many companies miss out on the R&D scheme because they wrongfully thought that it wouldn’t apply to their projects, or companies waiting too long to claim and missing out on some past expenditure they could have recouped.
The first thing you can do is seek to assess if development projects undertaken by your company could qualify as R&D eligible for tax purposes under HMRC’s guidelines. R&D Expert Ltd focuses exclusively on R&D Tax Credits, and from working closely with companies across varied sectors we have developed a deep understanding of what qualifies as R&D activity under the HMRC guidelines.
We are always happy to offer a free consultation to any company that seeks to evaluate its potential to claim R&D Tax Credits, so please do get in touch.
Contact
Email: maxime@rdexpert.co.uk
LinkedIn : https://www.linkedin.com/company/rdexpert/about/
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