8 tips about R&D tax credits that every business owner should know
The concept of research and development (R&D) tax credits is simple: to financially reward businesses who innovate through tax relief.
Unfortunately, that easy-to-understand concept doesn’t always translate into a smooth application process. To help make sure you avoid a probing HMRC letter, we’ve come up with a list of eight tips that every business owner should know before filling out their R&D tax credits application.
- Large businesses don’t qualify
Only SMEs qualify for R&D tax credits. Under HMRC law, a business is classed as large when it employs 500 or more people and has an annual turnover of over €100 million.
Large corporations can claim for Research and Development Expenditure Credit (RDEC), but this is far less generous than R&D credits.
Small businesses that are part of a larger organisation are unlikely to be eligible as employment figures and finances are calculated against an entire umbrella business.
- Grants can affect your credits claim
You’ll not be able to claim R&D tax credits if your business is already receiving a notified state-aid grant. You will, however, still be able to claim a smaller tax credit rebate through the RDEC scheme.
- Don’t work around HMRC’s tax year
Your claim should always be based around your company’s financial year – not HMRC’s tax year.
- Don’t list your directors as subtractors
HMRC will cross-check your listed subtractors against your company’s own details on Companies House. Any matches will be flagged and will cause a delay in your return.
- Know what is and isn’t eligible
R&D Tax Credits don’t cover:
- Land
- Patents and trademarks
- The production and distribution of goods and services
- Rent/rates
You can find out what is eligible by clicking here.
- Look into surrendering your loses
Unprofitable companies are eligible to claim for R&D credits. It would be more financially prudent, however, to carry any losses forward and to offset them against future profits at a rate of 20%.
If you don’t have the capital to do this, you can surrender your losses immediately and claim up to 14.5% back on R&D expenditure.
- Avoid jargon in your technical narrative
HMRC want to know the issue you have or are looking to solve and how you have gone about doing it. They don’t want buzzwords, adverbs or overcomplicated language. Keep your narrative short and sharp.
Don’t be afraid to talk about any problems or failures you’ve had along the way. One of HMRC’s main criteria for granting credits is that the attempted innovation is difficult to achieve.
- Check and recheck your application before clicking send
Go through every aspect of your claim with a fine-tooth comb before you click the send button. It’s vital that your figures are in line with your Profit and Loss Statement and CT600. Any sums that don’t add up will quickly be flagged by HMRC and will result in a substantial delay to the outcome of your claim.
