Research and Development Tax Credits

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This widely publiscised tax relief is available for more than you realise. Have you considered your eligibility?

Research and development tax credits have been around for some time now though many businesses are not making full use of the incentives with common misconceptions that the relief exists for scientists and those in laboratories.

We spoke to our partner Paul Farrington about Research and Development Tax Credits and why they are for more than just those with lab coats.

Research and development as intended for tax purposes doesn’t always take place in laboratories with scientists in white coats.

It is estimated that around nine out of ten eligible small and medium businesses are failing to claim for eligible R&D expenditure.

Innovation comes in many different forms, for example a restaurant developing a new app linked to its takeaway service or a manufacturer pushing boundaries on production techniques.
“It is out experience that many businesses are put off by the term R&D and immediately believe they don’t qualify,” says Paul.

R&D tax relief provides up to a 230% total deduction from taxable profits

“When we sit down to discuss the interesting things the business has done over the past two years, we often learn of the ways small businesses are pushing the boundaries of innovation.”

“Companies are missing out on valuable tax relief which can very quickly add up to tens of thousands of pounds.”

The relief allows a company to deduct an extra 130% of qualifying costs from its annual taxable profit to create a total deduction of 230%.

For example £2.30 of tax relief is achieved for every £1 of qualifying expenditure.

The average R&D claim generates over £55,000 for small and medium sized businesses

Qualifying expenditure can include materials, wages, overheads, and even subcontractors.

Claims can be made for the last two years and HMRC usually issue their refunds within 6-8 weeks of the claim being made

Paul says: “It is often worth a quick ten minute conversation to understand if you could qualify for the relief. The potential result from making a claim could make a significant financial impact on the business.”

“In our experience many business owners are surprised to learn of the qualifying criteria and underestimate the amount of R&D that is inherent in the work they do.

“We have some fantastic small businesses here in the North West who specialise in solving problems for their customers and clients. More often that not this problem solving leads directly to research and development.

“Because we also work with our clients on their accounts we are often well placed to maximise any claim.”

NR Barton specialise in assisting to identify eligible R&D projects, highlighting expenditure for the claim, and preparing the claim document for HMRC. We also have experience in defending claims should HMRC make enquiries into the claim.

R&D Key Questions

What to ask yourself as you consider an R&D claim.

1) What is the scientific or technological advance?

Rather than stating the product, process or functionality being developed, consider what advance is being sought. Focus your attention on how you are looking to develop something that is not readily available.

2) What scientific or technological uncertainties were encountered?

Uncertainty exists when knowledge of whether something is scientifically possible or technologically feasible, or how to achieve it in practice, isn’t readily available or deducible by a component professional working in the field.

3) How and when were the uncertainties overcome?

Remember that the commercial failure of a product does not mean that R&D wasn’t present. And if the scientific uncertainties weren’t overcome, that can still mean that the work to address the uncertainties can be R&D.

4) Why wasn’t the knowledge being sought readily deducible by competent professionals?

It might be publicly known that other have tried to resolve the uncertainties and failed. Or maybe other have resolved uncertainties, but precisely how it was done isn’t in the public domain. In either case a valid technological uncertainty can still exist.

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