5 Benefits of claiming R&D Tax Credits that you probably didn’t know…
Many businesses have heard of R&D Tax Credits but they may believe that the scheme is not for them, this is due to many misconceptions surrounding the incentive that are usually not true. R&D Tax Credits can work as a great cash injection for your business, especially if you have been working towards innovating in any way. The tax incentive is one of a few ways that you can legally lower your Corporation Tax Bill, offering a generous rebate of up to 33% on all eligible expenditure.
R&D Tax Credits are used across the board to stimulate and encourage R&D Investment for UK companies. Innovation is vital for companies globally to foster competitiveness, job creation and productivity which are all important for sustainable economic growth. There are many reasons as to why your business should be claiming if you are innovating, so we are outlining some benefits of using the scheme that you may not be aware of.
1) Every sector can be eligible for R&D Tax Credits!
It is a common, harmful misconception that only companies that are highly innovative in nature, such as a pharmaceutical company are eligible for the scheme, or will benefit from it the most, but this is not the case at all. R&D can occur across just about every business sector, for example the Manufacturing, Agriculture and even the Hospitality sector have all had some large claims. You also do not need to be a huge company, making ground-breaking discoveries either, you just need to be making even the smallest innovations to products, processes or services, as long as a technical or scientific advantage has been discovered.
Businesses of all sizes can gain significant cash rewards for their innovation activities through R&D Tax Relief, it is best to use an R&D specialist when it comes to preparing the claim as they will have the most knowledge with niche markets, and will be able to maximize your claim while ensuring that the application is compliant.
Some other examples of industries that can claim R&D Tax Credits are:
- Agriculture, Forestry & Fishing
- Arts entertainment and Recreation
- Creative Industries
- Electrical Engineering
- Electricity, Gas, Steam & Air Conditioning
- Food & Drink
- Financial & Insurance
- Health, Care & Social Work
- Information & Communication
- IT & Software
- Mining & Quarrying
- Real Estate
- Science & Medicine
- Transport & Storage
- Water, Sewage & Waste
- Wholesale & Retail Trade, Repairs
2) A broad range of costs make you eligible
There are many different costs that are eligible to be claimed for, a company that spends money on developing new processes, products or services, or even improving existing ones will be eligible. The amount that you will receive will depend solely on how much you have invested into innovating within your company. The costs range from staffing costs to Capital Expenditure, all eligible costs are listed below:
- Staffing costs (salaries, wages, cash bonuses and allowances, this also includes employer contributions to NI and Pension)
- Consumable items & Software (Materials that are employed in R&D, software licenses, water, fuel and power)
- Subcontracted activities (payments that are R&D related, contracted out to a third party, only applicable for SMEs, and payments to qualifying bodies, only applicable for large companies)
- Externally provided workers (such as agency staff or staff that are provided by a connected company, third party contractors under supervision, direction or control of the company, costs of people used from other group companies)
- Capital Expenditure (allowances for R&D or for providing facilities that are used to undertake R&D, such as laboratories or test environments)
To find out more about whether your costs are eligible for R&D Tax credits, click here.
3) No minimum claim value requirement
Another benefit of claiming R&D Tax Credits is that there is no minimum claim requirement. Since 2012, the minimum requirement was scrapped from the previous £10,000 amount, which opened the possibilities for smaller businesses who may not have spent as much money on R&D as a large company has. As there is now no minimum amount, the possibilities are endless for businesses of all sizes, as long as they have the relevant qualifying R&D expenditure and are a limited company.
SME’s are able to claim up to 33% of qualifying expenditure, a company is considered an SME if they employ less than 500 employees, and either have an annual turnover under £100 million or a balance sheet under £86 million. In the HMRC R&D Tax Credits statistics for 2021, there were far more SME claims than larger companies claiming through the RDEC scheme.
4) HMRC aim for 95% of claims to be paid within 28 days
HMRC aim to make payments within 28 days of your claim being accepted for SME’s, this of course can be prolonged if an investigation is taken into the claim. Corporation Tax Refunds typically take less time to process than an R&D Tax Credit repayment as they can be issued through an automated process which does not require intervention from a HMRC inspector to make payment. Any claims that include carrying back losses if you are a loss-making company can take longer, due to a HMRC inspector needing to assist with the automated process that HRMC uses for more straightforward refunds, as it may not always be able to recognise them.
Other factors such as seasonal availability, or internal workloads can affect the time that it takes for your R&D Tax Credit payment to be made, an example would be claims made in peak periods such as year-ends in March, September and December as there are typically more claims to be processed by nature. A recent surge in claims will mean that your claim may take longer than 28 days, due to increased popularity and exposure of the scheme. If information is compiled correctly and efficiently, then even in the case of an enquiry, it can be a process that may just take an additional 3-6 months, which is why it is always optimal to
For large companies claiming through the RDEC scheme, the claim will generally take longer to process as they can be more complex, and difficult to process due to claims in specialist areas and tax requirements.
5) Loss-making companies can claim
Another benefit of the R&D Tax Credits scheme that is not widely known by many business owners is that if your company is loss-making, you can still claim, in fact a loss making SME (small-medium sized company) can claim between 14.5% and 33% of their R&D expenditure, and an RDEC (large company) can claim on 9.7% of their R&D expenditure. Loss making SME’s also get the choice to not surrender their R&D loss but instead carry it forward to a future profitable year, or backwards against profits. It would be generally recommended to carry forward losses to the future depending on individual circumstances, such as if your future profitability is easily predicted, the return can be much higher than if you receive a cash credit, but most loss-making companies prefer to receive the immediate cash payment.
Applying for the SME R&D Tax Credits scheme if you are loss-making is actually known to be one of the most beneficial ways to access the scheme, giving SME’s extra support while they are experiencing losses. The way that a loss-making company will receive the R&D Tax Credit will be different to profitable companies, instead of being offered a Corporation Tax Bill reduction, a loss-making company can receive a partial or full cash refund for qualifying expenditure.
To find out more about how R&D Tax Credits can benefit your individual goals, contact us today to discuss this with one of our R&D specialists to determine your eligibility.