The pandemic has afforded people time to take stock. Many are seizing the opportunity to change direction. For some that means setting up their own business. It’s not easy, of course. Turning your idea into a profitable business is not without risk. Funding is key. So, why claim R&D tax credits?
The R&D Tax Credit Scheme encourages businesses to innovate. Specifically, by investing in R&D. It’s a government initiative. The aim? To raise R&D investment to 2.4% of GDP. The government is currently consulting on a 10-year plan.
How you can benefit
How can the R&D Tax Credit Scheme help you? Basically, businesses can reclaim a percentage of their investment in R&D. For SMEs it’s 33p per £1 spent on qualifying activities. Large companies can claim 11p. It can be a reduction in Corporation Tax or a cash repayment.
What can I claim for?
You qualify if you’re creating new products, processes or services. Or if you’re modifying an existing product, process or service.
Basically, R&D activities include brainstorming for new products and services. And designing them and developing prototypes. Typically, you can claim R&D tax credits for staff costs, agency workers or freelancers. Software license costs also qualify. As do consumables. For example, heat, light, and power. Also, materials and equipment used or altered during the R&D process.
Benefit to start-ups
The R&D Tax Credit Scheme is especially useful for start-ups. Are your R&D activities eligible for tax relief? If so, you could get a cash injection to help cover the costs. So, what if you’re the only employee? You’re building a business. As such, your focus will always be on R&D. Therefore, include your gross pay. National Insurance Contributions (NICs) are relevant, too. And include reimbursed expenses and employer’s pension contribution in your R&D claim.
How to claim R&D tax credits
To claim, apply to HM Revenue & Customs (HMRC). Think you have more than one eligible project? No need to choose between them. You can claim R&D tax credits for up to 10 projects. Plus, there’s no rush. Claim up to two years after the relevant accounting period.
Proceed with care
Always take care when submitting a claim to the R&D Tax Credit Scheme. HMRC could reject it. Unfortunately, this could trigger an investigation. So, be clear about what you want to claim. Make your technical report informative, accurate and concise. Prepare a schedule of costs.
Generally, errors occur because people don’t understand HMRC’s guidelines. So, businesses try to claim for activities that don’t meet the criteria. Or costs that aren’t eligible.
Remember, don’t include all the project costs. Your claim relates to the R&D element only. And not every project involving a technological advancement qualifies for R&D tax relief. Of course, it’s vital that your figures add up. Any claim must match the data in your published accounts.
The application process to claim R&D tax credits may seem complex. Certainly, it can be time-consuming. Give yourself the best chance of success. Seek advice. Call us on 01785 243276 or email howardsca.co.uk