5 Things Most People Get Wrong About R and D Tax Credits?
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Many of you are aware of R and D tax credits and R&D tax relief which are such a lucrative scheme by the UK government. R&D incentives such as R and D tax credits and R&D tax relief are a reward to encourage businesses which are investing in science and technology. R&D incentives are the most generous and useful incentives with flexible eligibility criteria to accommodate everyone who is seeking innovation and working for the advancement in science and technology. But still, many businesses hesitate to make an R&D claim due to some misconceptions. There are several misconceptions regarding R&D claims which come across every day. This blog will discuss common misconceptions and explanations to clear those myths out!
1. “R and D tax credits scheme is only for businesses creating some new services and products”
Most of the businesses restrain from claiming due to this misconception that only those businesses qualify for R&D claim which are creating something new or have labs for developing a new product. The majority misunderstands the eligibility criteria of R&D given by HMRC for R and D tax credit claims.
According to HMRC, your project is eligible if it “may research or develop a new process, product, or service or improve an existing one.”
In the light of this definition, to be eligible for an R and D tax credit claim, your business DOES NOT need to create something new or produce new products, R&D eligibility goes beyond that. Even if your projects focus on upgrading existing technology or upgrading existing products it is still catagorised as R&D hence is eligible for an R and D tax credit claim.
You are eligible to make R and D tax credits if your company:
- Has been seeking innovation by creating something new
- Or bringing advancement in existing service or product by upgrading it
- Finding a more efficient procedure
2. “Companies can only make an R&D claim against successful R&D project.”
A second most common misconception is that R&D claim is only for those projects which are successful. Many businesses abandon their failed R&D projects considering them of no use. But that’s not the case, R and D tax credit claims can be made against unsuccessful R&D eligible projects.
HMRC has set very precise and clear eligibility criteria according to which if your project fulfills prerequisites of the claim regardless of projects success you can claim R and D tax Credits or R&D tax relief. Even if your whole had no useful outcome it still falls under R&D and HMRC would allow you to make claim for all the eligible R&D expenditure.
3. “Only profitable companies are eligible to make R&D claim”.
We have witnessed that many companies do not claim for R and D tax credits because they aren’t profitable. Like we discussed earlier in this blog that for HMRC if you are seeking advancement in science or technology then you are eligible so it does not matter if your business is at loss. On the contrary, HMRC is aware of the fact that in this field of work there is no immediate profit or success hence its R&D scheme is more generous toward loss-making companies. It allows loss-making SMEs to claim up to 33% of their eligible R&D expenditure via R and D tax credits scheme and loss-making larger companies to reclaim up to 13% of their eligible R&D costs.
So it can be a very helpful source of cash for loss-making companies to regulate their cash flow and reinvest to move their business forward.
4. “Companies can only make an R&D claim once they reach minimum set of requirements of R&D cost.”
People assume that there is a fixed amount of R&D expenditure which the company should reach before the claim. When R&D tax relief schemes were launched in the year 2000, there was a fixed R&D expenditure of £10,000 to become eligible for R and D tax credit claims. This eligibility condition was removed in 2012.
Now there are no minimum eligibility criteria for the claim. A new condition that has been added is the PAYE cap, which came into effect in April 2021. It adds an upper limit to the amount of credit you can claim to discourage fraudulent claims. It sets a limit of 300% of your total NIC liability claims.
5. “Company can make R and D tax credits claim if they submit their accounts for the year.”
Claimants are often unaware of the fact that while making claim for R and D tax credits you can also for the previous financial year. You can claim for an accounting period that ends up to 2 years prior to submitting an R&D claim to HMRC.
While claiming for the first time make sure to include all your R&D costs from previous financial years.
Though it is important to note that you have to close your accounts for the financial year to submit an R&D claim for that year.
How Valiant & Stone Can Help You?
Here at Valiant & Stone, our R and D tax credits specialists provide honest advice along with clear instructions for R&D claims. Our experts are committed to helping your business to grow through these lucrative R&D tax relief schemes. They help you add value to your business with R and D tax credits, which you can reinvest in the growth of your business.
We are here for your assistance throughout the claim process. Contact us to start your claim process now!