All About R&D Tax Credits

Video Transcription

 Hi, and welcome to our session. We’re going to have a little look at business R&D tax credits. So we will explain what that is and demystify it just a bit.

So what are R& D tax credits?

Well, R&D, research and development, the tax credit is a government initiative to encourage businesses throughout the UK to invest in challenging and innovative projects which will have some sort of, I guess, economic return for you in the future.

So, the first point to note is that business R& D tax credits are open to UK businesses. So UK businesses. It doesn’t matter what size or shape your business is; all businesses in the UK are potentially eligible for R&D tax credits.

At any stage of business, whether you’re a startup, scale-up or a very successful business, you can apply for R&D tax credits.

R& D tax credits revolve around projects

So, the second point about R&D tax credits is that they are quite project-based, and as I mentioned a moment ago, those projects need to be innovative and challenging. Two key words in the world of R&D are tax credit chains.

So, what do I mean by innovative and challenging? So this is doing something in your business that is difficult to do and doesn’t have 100 per cent certainty you’ll be able to achieve it.

So, for example, you might be trying to integrate two systems and doing some system integration, which you hope you can get one system talking to another system. And you’re doing a bespoke piece of work that is quite innovative to get those two things to talk together.

Challenging

We’ll have a positive business outcome and a bit of a challenge to get those things done. So, like me, in most of your businesses, you’ve probably got many challenges. Every day that you’re looking to address some of those challenges, it may well be innovative and form part of a project that could potentially have an R&D claim made against them.

How to make a claim

So, project-based for all UK businesses. So, if you identify a project in your business that you think may be an R&D project, then how do you go about it, or when can you make a claim for that?

Claims for R&D are made every year. You can make a claim for R&D. Typically, you would do that after you’ve finished your accounting year and done your corporation tax return if you’re a limited company.

You would then go on to look at the projects that you’ve done in the year and look to put those into an R&D claim. If, like our clients at Next Level Business, we do the annual accounts, and at the same time, we’re looking at the projects and the R& D claim.

R&D Claim Time Limits

You can claim yearly, but you can also go back two years. So, if you haven’t made a claim before, you can go back to two accounting periods and make a claim for up to two years ago.

The only issue with that is if you miss the deadline of two years, so three years ago, you can no longer claim R&D tax credits.

So it’s really important to ensure that if there is a project in your business, you uncover it and make sure you make a claim within a reasonable amount of time. You’ve got two years from the accounting year’s end to do that. Otherwise, you lose the opportunity.

So, unfortunately, there is no going back five or ten years to make any R&D claims.

What is the Value of a Claim

Now, what you’re saying to me now, I’m sure, is what is the value of a potential claim? So the answer to that is probably slightly bigger than you think. The average claim across all businesses in the UK is actually £53,870. 26 for a business in the UK.

So, it is not an insubstantial amount of money by any means, and it doesn’t matter if your business may be on the smaller end of the spectrum or, indeed, on the larger end of the spectrum. This number can vary quite dramatically depending on what exactly you are doing in the business.

R&D Claim Examples

So let’s talk about a few examples to get you to understand qualifying activities.

Obvious Claims

Let’s break this down into obvious ones. So if you were doing a new, I don’t know, a new sports product, as we’ve done recently, that would qualify for an R&D tax credit claim.

If you’re doing perhaps a new medical device, chances are a lot of that would be a qualifying project, or perhaps you’re creating some customised software to sell, which again may well be a qualifying project for R&D.

So some obvious ones there where you think, okay, I’m probably doing something or creating something new and innovative. Chances are it’s a good project it’s a good project that’s likely to have a good claim. It would still need assessing, but chances are you’re on to a winner.

Not-so-obvious claims

These are the less obvious areas where businesses think, “I’m not doing any R&D activities in my business”. I don’t need to talk to anyone about R&D claims.

Well, some of those less obvious areas are; maybe your business relies on having lots of customer data, or you’re doing lots of interesting marketing to your customers, or you’re collecting customer data.

Maybe your business has got a customised CRM system.

So you’ve maybe taken an off-the-shelf product, and you’ve customised it to the needs of your business to work how you want it to work to achieve your business goals. So, if you’re dealing with customers, you may have done a customised CRM project. It’s not so obvious, but again, it may well be an R&D project.

Website Functionality

Another one could be a lot of businesses these days have got a website and those websites are increasingly getting more sophisticated and clever in terms of what they do.

So if you’ve spent some time perhaps creating elements or things on your company website that are very specific to you, whether it’s to drive sales, drive customer engagement, deliver products, that sort of thing.

There’s a good chance that the element of customisation that you’ve done to the website, which is unique and challenging, could form part of an R&D tax credit claim.

Process Development

And the final, not-so-obvious example I want to give you is one of a new process or system that you may be putting into your business. So a new process and system, this might be a new way to make something.

It might be a new production line. It could be a new methodology to make something, new moulds, that sort of thing, or it could be an entirely digital process, for example, of how you get content or other things out of the door.

So if you’re doing something that involves perhaps creating a new system or a process, the chances it would be something worth considering when looking at R&D projects. And you never know. You may get a claim.

Summary

So that’s it from this session.

The key message is don’t ignore R&D tax credits.

If you think you may well have something that qualifies that’s obvious or even not so obvious, do explore it and good luck and we’ll see you next time.