Many innovative start-ups and SMEs are under the impression that claiming for research and development tax credits are too difficult or costly to be worth the rewards.
In fact, the average R&D tax claim for London SMEs is £81,000, so it’s always worth finding out if you can claim.
These are a wonderful incentives provided by the government to spur innovation in the UK (especially important given the current Brexit-related uncertainty).
It means that for activities, and their respective costs, related to research and development you could get back 33p on every £1 of investment.
EmpowerRD provides an alternative to expensive accountants/advisors for start-ups and scale-ups.
They utilise clever technology and domain expertise to allow users to retain significantly more of their taxpayer funded R&D tax credit and file in a fraction of the time. They have identified below five key factors to look out for when it comes to R&D.
Look back over the last 2 years – you can still claim for those projects
Many assume they can only claim for the previous tax year, but they can actually claim for projects further back than that. You have 2 years from the end of your accounting period to submit an R&D tax claim, which means you can include projects carried out in 2015-2016.
According to HMRC guidelines, a project starts as soon as work begins and ends when “the uncertainty is resolved” or working towards it stops. This can be when your business has a prototype, a process ready for testing, or even come to the decision that the project isn’t viable.
Don’t be fooled by advisor’s fees
Other advisors may advertise a low fee, but the way it’s calculated could mean paying significantly more. A common pricing ‘trick’ is to hide the fact that the ‘low fee’ is charged on the total qualifying costs identified, not on the credit you’re likely to get from HMRC.
Make sure you keep detailed records
When your advisor asks for evidence to support your claim, you’ll need to be able to assemble it fairly quickly, particularly if you’re coming to the end of your 2-year period. Evidence is crucial for your claim, so it needs to show a clear picture of all your relevant expenses.
If you’re unsure what evidence you need to gather from the past couple of years, your advisor can give you some guidance. Evidence will need to prove the costs of hiring staff and subcontractors, building prototypes, and any software or materials purchased, but this isn’t an exclusive list. If it was essential to the project, it can usually be included.
Cut down the amount of time it takes to make and file your claim
An end-to-end service supported by expert advisors makes the process far more efficient than the traditional tax consultancies. Once you’ve entered your details into a platform, a claim can be confirmed within a day. In contrast, most traditional tax advisors will need four weeks. It is a long wait when you consider that you then need to wait further 3-4 weeks for HMRC to process your claim.
Consider how grants might affect your claim
Receiving grants in the past can sometimes make claiming more complex. If your business received notifiable State Aid, you can’t claim for R&D tax credits on top of that. Other forms of State Aid are acceptable, including de minimis and funding from schemes like Horizon 2020.
This is an area that many start-ups and SMEs are unsure about, but they certainly shouldn’t be expected to be instant experts. Before you rule out a claim, find out if the State Aid you’ve been granted is notifiable or not.