Date15 Dec 2021
CategoryTax, R&D Tax Incentives
As the Government looks to turn the UK into an innovative powerhouse to support its recovery from the pandemic, investment in Research & Development (R&D) is more important than ever for UK businesses.
COVID-19 support measures are coming to an end and many SMEs will look for alternative options of how they can positively impact their cash flow and reduce their corporation tax bill. A key consideration for UK companies should be R&D tax relief - a generous relief for businesses who continue to invest in innovative activities.
Broadly, to qualify for an R&D tax credits claim, a company’s project must seek to achieve an advance in science or technology through the resolution of scientific or technological uncertainties. This R&D definition can lead many to believe that the activities they undertake and expenditure they incur are not qualifying, however, in our experience, clients often do not realise the potential for R&D in their work and therefore aren't making the most of R&D incentives and the tax savings the scheme offers.
There are two schemes currently available, the R&D expenditure credit (RDEC) scheme which replaced the large company scheme in April 2016, and the small or medium-sized enterprise (SME) scheme aimed at smaller businesses. RDEC can also be claimed by SMEs who have been subcontracted by a larger business or who have received a grant or subsidy for their R&D project.
For companies undertaking work that qualifies, R&D can result in significant tax savings or cash repayments. The benefit of R&D tax credits can vary considerably depending on how the relief is applied. This is why careful planning is paramount to ensure that this R&D benefit is utilised in the most efficient manner.
There is a misconception that R&D tax relief is only beneficial to profitable companies, however, even loss-making companies have a range of options to choose from, including the potential for cash repayments. What’s more, even if your development is abortive or unsuccessful, it still counts.
The rate of Corporate Tax is rising to 25% in 2023 – making the relief even more valuable. Planning around R&D tax is crucial to achieve the best outcome, especially if the goal is to reduce your tax liability.
The savings come at a significant cost to Government and as a result, legislation is regularly introduced to counter abuse of the relief.
Plenty of activity is being seen in the R&D consultancy advice space which is unregulated, poor quality and could lead to serious consequences for businesses if non-qualifying activity is claimed for. This is partly due to a small group of ‘rogue’ boutique advisors who inappropriately seek to maximise R&D tax relief claims and actively target SMEs hit hardest by the pandemic.
Recent figures suggest £311m is over-claimed through errors and fraud annually. To tackle this, HMRC are employing a greater workforce to scrutinise R&D claims and we are anticipating an increase in HMRC enquiries for R&D claims.
The UK Government are incentivising companies to increase investment in innovation and attract talent to the UK and have recently announced plans to widen the scope of qualifying costs but will seek to restrict relief to UK R&D activities only. This, coupled with the complexities and restrictions when performing calculations on eligible expenditure, highlights the importance of an R&D tax advisor who understands your business and can help you navigate the highly complex world of R&D tax relief. There are significant potential costs for getting it wrong.
At Azets, our trusted business advisors are on hand to offer R&D tax relief advice and have a wealth of experience in making R&D claims in a wide range of industries and sectors. Our specialists have an excellent track record in making successful, HMRC-compliant claims and have delivered significant tax savings for our clients.
Using our deep knowledge of the government support available, the qualifying criteria, and the application process, we’ll help you to unlock those all-important incentives and cash injections.
Get in touch with the Azets specialist R&D team today to find out more and get started with your claim.