If your accounting year-end is 31st March and you operate an innovative business, the deadline for claiming a Research and Development (R&D) tax credit for your 2015/16 accounting period is nearly here.
Many companies are surprised to learn that they qualify for this valuable source of funding. So, it always pays to check. If you have developed new or improved products, processes, or services, you may be carrying out qualifying activity.
According to HM Revenue & Customs (HMRC), which administers the incentives, the average R&D tax credit value to small and medium size businesses (SMEs) is £61,314. That’s cash that could spark the next big project or fund the final push in creating something remarkable.
When is the deadline to claim my Research and Development Tax Credit?
You have two years from the end of your accounting period to submit an R&D tax credit claim for qualifying expenditure you've incurred in that period. So, if you miss the deadline at midnight on 31st March 2018, you can no longer recoup any of the money spent on qualifying activities between 1st April 2015 and 31st March 2016.
If you have already made a claim for this period but want to be sure you haven’t missed out on any untapped value, this same deadline applies for reviewing a claim too.
How do they work?
R&D tax credits are a Government tax incentive designed to encourage innovation in the UK. The Government rewards limited companies that are innovating because it knows that doing so brings significant benefits to the wider UK economy.
As a tax incentive, R&D tax credits are only available to limited companies.
You also must be undertaking research and development and have spent money on it. Examples of R&D include:
- Developing a new lighter-weight material to improve efficiency
- Using AI and machine learning to develop chatbots
- Building a bespoke e-commerce platform
What are they worth to my business?
How much R&D tax credits are worth depends on how much money you have spent on qualifying R&D activity. You can potentially include the following costs in your claim: staff, subcontractors, materials, and consumables (such as heat, light and power).
As an SME, you could claim up to 33p for every £1 you have spent on qualifying activity if you are loss making. Profit-making SMEs can claim up to 26p for every £1 spent on qualifying R&D. The average claim value for SMEs in the UK is £61,314, and for some, it can be much more. SMEs claiming R&D tax credits receive their benefit as a Corporation Tax reduction and/or cash credit.
Don’t let your grant funding stop you
There is a misconception that the receipt of a Government grant prevents you from claiming R&D tax credits. This is not true.
If you are grant-funded, you should certainly consider claiming R&D tax credits. How much your R&D tax credit is worth will depend on the nature of your grant – and whether you are able to make a claim via the R&D tax credit scheme for SMEs, large company scheme (RDEC) or a hybrid claim. The interaction between grants and R&D tax credits can be complicated, but with expert advice you can ensure your funding position is fully maximised.
How to claim and beat your 31st March deadline
It’s best to work with true experts in this specialist area when submitting a claim. They will optimise the value of your claim. This means including everything that is valid, while also ensuring it can be robustly backed up should HMRC challenge it.
TaxAssist Accountants has access to an award-winning R&D tax credit consultancy, Forrest Brown. Their team of chartered tax advisers is complemented by industry experts and former HMRC R&D unit tax inspectors and will manage your claim on your behalf. They will gather information from you about your business, prepare all the paperwork and liaise with HMRC for you.
If you would like to learn more, please get in touch with your local TaxAssist Accountant on 020 3196 4888 or use our simple online request form.
By Jenny Tragner, Director at Forrest Brown
Last updated February 2018
Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.