Most businesses believe it just doesn’t apply to them.
You are about to submit your annual businesses tax return, and ask yourself this question. ‘Has my business invested in any kind of research and development in the past 2 years?’. The answer that more and more businesses are finding out, is ‘YES’, and through an R&D Tax Credit, receiving money back.
95% of UK businesses do not claim R&D Tax Credits. We understand that not every business invests in R&D such as those using long established methods, tools, processes etc, however so many businesses are still missing out on this government tax break. The R&D Tax Credit along with the Capital Allowance Benefit, remain two of the most under claimed tax credits available.
*Capital Allowance benefit applies to any commercial lease holder or property owner where the property is either used as business premises or held as an investment, and is disclosed within the fixed asset schedule on their balance sheet. We identify through a FREE survey on electricity, piping, fixtures & fittings, refurbishments, lifts etc and provide a full report to submit along with your tax return.
Note: Tychon also provide the Capital Allowances Claim service, so do please contact us if this is of interest, where a short survey will identify if you have a claim.
It is widely expected that HMRC are about to relax the rules further around what is considered eligible spend, which will help maximise businesses R&D Tax Credit claims. Two of the most anticipated sectors are Software and I.T which are expecting broad changes as HMRC looks to expand eligibility in several areas.
In the UK in 2018, total expenditure on R&D was £37.1 billion, £558 per head, or the equivalent of 1.7% of GDP. R&D investment has risen steadily over the past few decades, from £20.0 billion in 1986 to the current total of £37.1 billion (in 2018 prices). This is a real terms increase of 94%. It would appear the government are very serious about growth through R&D, they have committed £22bn a year by 2023 into driving and rewarding eligible R&D efforts with tax credits and achieve 2.4% of GDP by 2027. In 1986, R&D expenditure as a proportion of GDP was 19%.
When thinking on if your business may have eligible R&D spend, we tend to focus on where an achievement was made, a successful outcome where a technical advancement occurred, a technical uncertainty overcome or the development of a new process or product. Sadly however the reality in life as we all know, is that not every project ends up a success.
Unsuccessful projects, failed attempts and associated costs are just as eligible a spend in R&D as those that deliver progress or advancement. Focussing solely on those successes can often mean that a company underclaims or worse still doesn’t claim at all for R&D tax relief.
Take a business operating at 2. Industry Baseline (above graph), Any ‘attempt’ at some kind of technical advancement or having been presented with a technical challenge in your efforts to progress, will almost certainly have you in the R&D Tax Credit bracket, regardless of the outcome.
What we now need to determine is what of that spend is eligible, and you may be surprised on some of the costs that can be included, such as utilities, externally provided workers, software costs, directors bonuses and directors pension payments can all be claimed back in eligible spend in accordance with HMRC guidelines.
HMRC GUIDELINES ARE VERY CLEAR ABOUT THIS
“Not all projects succeed in their aims. What counts is whether there is an intention to achieve an advance in science or technology, not whether ultimately the associated scientific or technological uncertainty is completely resolved, or resolved to the degree intended. Scientific or technological planning activities associated with projects which are not taken forward (e.g. because of insurmountable technical or commercial challenges) are still R&D.”
What this means is that, as long as the project met the criteria for eligible R&D, it can be claimed for, no matter the outcome. It is what you did trying to achieve that matters, regardless of the goal.
CAN I CLAIM FOR ALL FAILED PROJECTS?
Probably not. There are two things to consider when thinking about failed projects, whether they constituted eligible R&D, and why they failed. This gives you four possible scenarios:
- The project did not seek to make an advance on science or technology, and was shelved for commercial reasons.
- The project did not seek to make an advance in science or technology, and was shelved for technical reasons.
- The project sought to make an advance in science and technology, required the resolution of technical uncertainties, and failed for technical reasons.
- The project sought to make an advance in science and technology, required the resolution of technical uncertainties, and failed for commercial reasons.
Looking at these scenarios, you can see that projects that fall into 1 and 2 would not be eligible for R&D tax relief, as they would not meet HMRC’s criteria for eligible R&D. For example, if a company wanted to make a new type of lamp using off-the-shelf components but found that they could not make the components work together, they would not be able to include the costs of this project in an R&D claim because no eligible R&D had taken place.
On the other hand, projects that fall into scenarios 3 and 4 would be eligible for R&D tax relief because they do meet the criteria for eligible R&D. For example, if a software company worked to produce advanced software to enable better analysis of Big Data in Marketing but was forced to shelve the project when a competitor released a similar product, they would be able to include the eligible costs of this R&D in an R&D claim.
ITS NOT JUST FOR THOSE WEARING WHITE COATS
A Scientific or Technological advancement may sound reserved for those in laboratories or spending their days staring into microscopes, and unsurprisingly, R&D spend is in this particular sector is rampant, however it also applies to those in businesses both large and small with the top claiming sectors being:
- Wholesale and Retail, Repairs
- Admin & Support Services
- I.T and Software
- Information and Communication
We help you determine what is eligible spend and guide you through the process and calculations ending with you receiving your R&D Tax Credit report to submit along with your tax return.
Book a FREE consultation to discuss eligibility in either R&D Tax Credits or indeed Capital Allowances, and if there is a worthwhile claim for you to make. If so, we will provide a dedicated Chartered Accountant using the UK’s only fully automated R&D Tax Credit software who will walk you through to the end with complete transparency enabling you to make a decision with confidence.