For small businesses, the best approach to making an R&D tax credits claim is to work with a specialist R&D tax credit consultancy firm that can provide targeted technical expertise and deliver an exceptional level of service, as smaller companies may feel overwhelmed by the HMRC definition of R&D and may not have the internal resources available to do further research on claiming R&D tax credits.
To further help small businesses seeking to claim their R&D tax credit entitlement, the London- and East Midlands-based R&D tax consultancy firm Myriad Associates has developed an additional option for SMEs seeking to claim their R&D tax credit entitlement: Tax Cloud, an R&D tax credit claim portal.
Tax Cloud offers your small business a guided, cost-effective, online tool to help you through the R&D tax relief claim process. After a straightforward sign-up process, Tax Cloud automatically verifies your details through Companies House. You then use the Tax Cloud forms to provide information about your R&D projects and their costs. Myriad Associates’ expert consultants review and support your claim by giving you feedback and recommendations to ensure that you’re on the right track. Once you’ve finished your claim, Tax Cloud takes your project details and creates an R&D tax relief claim report that’s ready for you to submit to HMRC.
What are the benefits of a self-service R&D tax credit portal?
A self-service R&D tax credit portal like Tax Cloud offers you the benefits of working with a leading R&D tax relief specialist at a reduced price. These platforms are designed with small businesses in mind, providing you with a guided approach to making your R&D tax credit claims. You can work through the process at your own pace, and seek help from technical specialists, cost accountants, and tax experts anytime you have any questions.
The fee for a successful claim through Tax Cloud is 3.5 per cent of the company’s R&D expenditure, which is equivalent to 10.4 per cent of the corporation tax savings for a loss-making business, and 13.5 per cent of the corporation tax savings for a profit-making business. Typical R&D tax consultancy rates are around 20 per cent of any tax credit payable or refund of corporation tax. There is no upfront fee for using Tax Cloud – users only pay after their R&D tax credits claim has been successfully processed by HMRC.
How many businesses are claiming their R&D tax credit entitlement?
HM Revenue and Customs have published the latest statistics for R&D tax credits for the 2015-16 financial year. Once again there has been an overall increase in the number of tax relief claims submitted, as well as in the overall total amount of relief claimed.
The total number of claims in the 2015-16 period was 26,255, an increase of 19 per cent from 2014-15. In particular, the number of claims under the Small and Medium Enterprise (SME) scheme rose from 17,875 in 2014-15 to 21,865 in 2015-16, an increase of 22 per cent, with £1.3bn claimed.
However, although more UK SMEs are claiming R&D tax credits than ever before, many companies are still missing out. Almost any company in any industry is eligible for R&D tax credits, so long as the business is undertaking development activities to seek to achieve an advancement in science or technology. Many businesses are doing this in their day-to-day work, from software development and engineering companies to firms working in food production.
If your company is taking a risk by innovating, improving, or developing a product, process, or service, then you can quality for R&D tax credits. The project must contain a level of technical uncertainty for a competent professional, so if you faced questions that left you and your team scratching your heads to find a solution, that’s a good indication that qualifying R&D activities were taking place.
Is your business eligible for the SME scheme?
- For a company to be regarded as an SME it must have a group headcount of below 500 staff and meet at least one of the following: a turnover of below €100m or gross assets of less than €86m. A large company is any company that exceeds the SME thresholds
- From 1 April 2015, the relief SMEs can receive has increased to 230 per cent on qualifying R&D costs. Loss-making companies can, in certain circumstances, surrender losses in return for a payable tax credit
How do R&D tax credits work?
Whether you make your R&D tax credits claim directly to HMRC, with a specialist advisor, or through a portal service such as Tax Cloud, there are a few areas to understand before you make a claim.
What activities can be included in an R&D tax credits claims?
The following activities would be considered eligible for R&D tax credits:
- Defining technical objectives
- Identifying uncertainties
- Feasibility studies
- Reviewing new and competing technologies
- Analysing, designing and developing the technology
- Producing technical specification or other documents to explain and support the R&D project and advancement
- Testing the product, process or software
- Planning and managing projects
In addition, certain indirect support activities may qualify for R&D tax relief, such as:
- Administration, finance, and personnel services specifically required to support R&D activities
- Training to support R&D
What costs are eligible for R&D tax credits?
The main areas of costs that can be claimed are:
- Staff costs (gross pay, employer’s National Insurance contributions, employer’s pension contributions, and reimbursed expenses)
- Agency workers/externally provided workers
- Sub-contractors/freelance workers
- Software licence costs
- Consumable items (materials or equipment used or transformed by the R&D process)
You can use an R&D tax credits calculator to see an estimate of your corporation tax savings based on your spending on your R&D projects.
Tax credits are a powerful way of supporting innovation in the UK economy and are extremely beneficial to companies of all sizes, particularly smaller enterprises, where cash flow can be a critical issue. With several options available for SMEs seeking to claim their R&D tax credit entitlement, including self-service portals such as Tax Cloud, there’s no better time to make your first R&D tax credit claim.
Lauren Olson is a technical consultant at Myriad Associates.