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By Dean Pearson, Tax Partner with BHP
First introduced by HMRC in 2000, R&D (research and development) tax relief has increased in popularity and become valuable to a wide range of companies. However, many companies remain unaware of the opportunity.
It’s a common misconception that R&D tax credits are only associated with hi-tech industries, cutting edge technology or ground-breaking new products; this isn’t necessarily the case.
BHP regularly carry out R&D meetings and our experience suggests some businesses still have preconceptions they won’t qualify for a variety of reasons ranging from “solving problems is just what they do” to believing it may not be worth the hassle. Some are put off because they believe they need fully completed timesheets to justify a claim.
At BHP, we help clients through this process and we’ve carried out R&D claims covering sectors including recycling, coffee bean roasting, software development, heavy haulage, construction and the automotive sector, to name but a few.
As well as innovation on new products, claims can be made for modifying existing products, processes or systems.
Whatever sector a company operates in, if a challenge has arisen involving resolving technological or scientific uncertainties, there is a possibility of making an R&D claim.
A project doesn’t even need to be successful! HMRC recognise that failures often arise in the world of R&D and are a good indicator that uncertainties existed. R&D tax relief is therefore still available for failed projects and any time spent on the process will still be eligible for the relief.
HMRC’s ultimate goal by providing enhanced relief for R&D expenditure is to encourage greater investment in innovation. It signals the government’s commitment to supporting the UK as a place for innovation and in September 2018 report, 39,960 R&D tax credit claims were made for 2016-17 – worth £3.5bn.
For SMEs, R&D tax credits work by enhancing qualifying expenditure for tax purposes by an additional 130%. The enhanced expenditure can then either reduce taxable profits of the company or group, or create an R&D loss, which can be cashed in to HMRC for a 14.5% repayable tax credit.
In short, a profitable company would get an additional tax saving of around 25% of qualifying expenditure, whereas a loss making company should get around 33% back.
Qualifying expenditure covers the cost of staff working on R&D projects, consumable materials, certain overheads and subcontractors.
As experts in R&D tax credit claims, BHP take pride in taking the time to ‘step back’ and help our clients recognise all the R&D they are undertaking, often without even realising. In the past year, BHP have been successful in saving our clients £9.4 million in R&D corporation tax relief.
Get in touch today on to find out how we can help.
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See more from BHP Chartered Accountants at www.bhp.co.uk
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