Research and Development (R&D) tax credits can provide businesses with a significant financial advantage, worth tens and even hundreds of thousands of pounds.
Despite this, according to a government report, it’s estimated that around 90% of eligible businesses aren’t claiming. Part of this is because of the myths surrounding eligibility, so we’ve demystified the top 5 – read on to make sure your company isn’t missing out on credits that could help you drive growth.
1) Our business isn’t a science and technology company.
This is a common myth we hear a lot when speaking with businesses right across the UK. Whilst it’s true that the R&D tax credits are awarded to companies making advances in science and technology, this doesn’t mean this has to be the sole focus of your business. In many instances, companies which have invested in developing new IT systems and software will be eligible to make a claim. The important thing is that your investment demonstrates innovation and improvements in your overall field of work.
2) Our project was unsuccessful, or it isn’t complete.
When undertaking any new project, it’s understandable to be focused on the end-goal and striving towards realising your ultimate vision. However, R&D projects don’t have to be finalised to qualify for tax credits. Similarly, even if the project isn’t realising its intended aims, it may still be eligible. The government introduced the scheme to encourage innovation and it appreciates R&D takes time and may have to address uncertainties and unforeseen circumstances. The important point to note is that claims for R&D tax relief can be made for qualifying expenditure going back two accounting years.
3) We aren’t involved in Research & Development (R&D).
Many of the businesses we work with and successfully claim R&D tax credits for, often primarily describe themselves as creating new products and services. This is their priority and the fundamentals of their business plans. They tend not to regard themselves as working in the field of R&D and it’s this that can prove a barrier to making a claim. One of our first steps is to work with businesses to show them that their day-to-day activities like creating new products, improving existing products or developing processes can all qualify as R&D.
4) We’ve already received a grant, so we can’t claim R&D tax credits.
This myth is all too familiar. Many successful start-ups and SMEs will be quite astute in seeking-out grants that help them grow their businesses. Likewise, larger companies will have the expertise to apply for relevant grants that support specific projects and expansion. This often leads businesses of all sizes to believe that because they’ve received grant funding, they are unable to claim R&D tax relief. This isn’t necessarily true. Companies, both SMEs and large businesses, may still be able to submit a claim, depending on the type of funding they’ve received. It’s not clear cut, but it can be quickly determined what’s eligible and what’s not.
5) We’re not making a profit, meaning we aren’t eligible.
This is perhaps one of the biggest myths and certainly isn’t true. While profit-making SMEs are able to claim a much higher percentage of R&D tax relief, any SME can still claim a tax credit even if the company is making a loss. This can be worth up to 14.5% of the loss. Larger companies can claim 12% of their company’s qualifying R&D expenditure, whether they’re making a profit or loss.