R&D Tax Relief
The Government regards investment in research & development (R&D) as crucial to economic success.
R&D tax relief is designed as an incentive for UK companies to invest in innovation. The relief can be extremely generous and can enable the company to invest its profits in order to grow and be ambitious in its outlook.
PKF Francis Clark’s team of specialist tax advisers and a time served engineer can help you identify and obtain the most suitable relief scheme available. These reliefs can equal up to a third of the associated costs for small to medium enterprises (SMEs).
For example, if we identify qualifying costs of £100,000 this can equal a tax saving of up to £24,700 for a profit making company. If the company is loss making, a cash refund can be claimed as these losses can be cashed in at 14.5%. For the same qualifying expenditure this can be worth up to £33,350 as current year losses, along with the losses created by the qualifying expenditure, can be cashed in.
Many businesses believe they are just performing routine, everyday tasks and therefore are not carrying out R&D. However, you may be surprised at what constitutes qualifying activities.
If you are eligible for R&D tax relief you may also be eligible for patent box relief.
How we can help
- We will determine which of the two schemes apply
- We will either visit you at your premises or have a call to further understand the business, to determine potential projects and qualifying activities
- We will then help you to gather the financial information we need to produce the financial side of the claim
- We will make sure that the claim includes all applicable costs in order to maximise the claim
- We will produce a first draft of both the report and the figures and share these with you for your approval and comment
Processing the claim
- We will work with your tax adviser to help with the preparation of the tax computations and submission of the claim
- We will support you fully in the event of a query from HMRC
Transparent fee – we will agree a fee structure with you that reflects your circumstances.
- A fixed fee quote, where it is reasonably clear that a R&D claim can be made
- A contingent fee based on the amount of tax benefit secured where the claim is less clear and requires considerably more time investment on our part to determine the existence and amount of the claim
Business sectors that could qualify for tax relief include (but are not limited to):
- Food & drink
- Software development
- Manufacturing & engineering
- Construction & architecture
- Waste management & recycling
- Chemical, life sciences & healthcare
- Creative enterprises such as film, television, animation and video gaming
Increasing HMRC activity
We are seeing HMRC opening a growing number of enquiries into R&D tax credit claims, amid an overdue crackdown on abuse of the schemes.
With fraud and error in corporation tax R&D reliefs estimated to be costing around £470 million a year, it’s no wonder the Government is trying to tackle this issue. However, concerns have been raised about HMRC’s approach and the impact on businesses engaged in genuine R&D activity, which the schemes are intended to incentivise.
For businesses, tax enquiries are often a costly and frustrating experience, and currently the chances of a successful outcome once an enquiry is opened appear to be low. In this context, it has never been more important to seek expert guidance on when – and when not – to submit a claim and how to go about this in the right way.
Changes to the scheme from 1 August 2023
From 1 August 2023, all R&D claims must be accompanied by an online submission via the HMRC portal, providing certain information in order for HMRC to accept the claim. Much of this information should already be present in a well prepared R&D report, something we strongly recommend all companies do before making a claim – however, if HMRC conclude that the minimum information required has not been presented they now have the authority to strike the R&D claim out. The claim will also need to include details of a nominated director of the company who is responsible for the claim being made. These additional requirements will add to the time needed to prepare for, and make, the claim.
For accounting periods commencing after 1 April 2023, certain companies will need to notify HMRC of their intention to make an R&D claim within six months of the end of the relevant accounting period. In simple terms, the first accounting periods this will impact will be those ending on 31 March 2024, with the advance R&D notification required by 30 September 2024. The advance notification will need to include a summary of the claim, along with some basic information about the company, the nominated director and the relevant accounting period.
Companies required to make the advance notification will be:
- those claiming for the first time
- those who claimed for the previous tax year, but did not submit that claim until after the last date of the claim notification period (the claim notification period ends 6 months after the end of the period of account)
- those whose last claim was made more than 3 years before the last date of the claim notification period
We anticipate that some claimant companies will be unaware of the new six-month rule. We will be working hard to raise awareness of this over the next 12 months.
Preparing your submission
It is now more important than ever that all R&D claims are submitted with an appropriate amount of supporting evidence. Generally speaking, this would involve the preparation of an R&D report which sets out:
- company background
- the basis for the claim
- the R&D projects themselves
- their linkage to the BEIS/DSIT R&D guidelines
- the qualifying expenditure calculation
The submission document should also attempt to cover off any specific risks or areas of doubt around the claim.
Without a suitably prepared supporting narrative, the claim is likely to be considered a higher risk by HMRC – and may even be rejected under the new rules. In addition, it may leave the company exposed to HMRC challenge for a longer period, together with HMRC taking the view that the claim has been made carelessly. Any argument that the claimant company has been careless then feeds into any penalty discussion if it is later concluded that the claim was incorrect or included errors.
Given the increasingly complicated R&D landscape and the increasing number of risks, the time it takes to consider, prepare and submit R&D claims will naturally increase. Companies need to plan for the fact that R&D claim processes will take longer and be more costly – we would therefore encourage companies to engage with their R&D advisers and begin planning processes earlier than they would otherwise have done.
For more information on all of these issues, watch our video here – all about the history of the scheme, HMRC activity and more detail about the changes coming in, and those that are currently being considered by the government.