Businesses are constantly trying to become more efficient and effective at what they do. Today, this is often influenced by factors in addition to the obvious financial reasons, such as reducing waste, being more energy efficient and making better use of technology. However, trying different techniques and activities can be costly for businesses, both in terms of money and time.
To encourage development and forward thinking, limited companies across a range of industries are encouraged to innovate through the availability of tax credits and tax relief against the costs incurred. Much has been written lately about the under-use of these schemes, but are they as simple as they sound?
To qualify for the tax benefits, Research and Development (R&D) activities must meet the following criteria:
- they should be designed to ‘make an advance in science or technology across the field/industry as a whole, not just to your individual business
- the activities may relate to an existing business, or area of it, or a completely new trade which you may start as a result of your R&D work
- the results of the project could not be easily worked out by a professional in the field
- the work could create a new technique or product, or improve an existing one.
Success rates are falling
HMRC are tightening qualifying criteria all the time. As a result, the success rate of claims has reduced from over 90% to around 65%. It can be very difficult to prove that you are creating a real advance in your industry or field of work and for it to be something which another person could not figure out, if HMRC’s R&D department have seen similar claims before.
While the result of the R&D project doesn’t have to be a success to qualify, you do have to be able to prove that you have undertaken the work. A recent case was dismissed as the taxpayer could not produce evidence that any actual work had been done.
Providing the necessary proof of work and the increased scrutiny from HMRC makes successfully claiming R&D tax credits or relief much more time consuming and difficult than it is sometimes portrayed to be.
Be aware that companies may ‘cold call’ your business to ask if you would like assistance in making a claim. You should weigh up whether these companies have an in-depth knowledge of your business as much as your usual adviser may have. They may also encourage you to make larger claims than we would recommend.
It can take HMRC some time to review and process your claim. Make sure the company who assisted you initially will also be there to help follow up any queries or disputes. If the company is no longer able or available to assist you, it could result in significant time and money to resolve matters with HMRC.
If you think that your limited company is incurring costs which would meet the above criteria for a claim, please do contact us and we would be happy to discuss this in more detail.