How to take advantage of R&D Tax credits?
Despite the large scope of the R&D Tax Credits Scheme, with many tens of thousands of companies eligible, a lot of people don’t know about R&D tax credits, or have been misinformed about them.
The R&D Tax Credits scheme, whose full name is “Science and Technology Research and Development Tax Credits”, is a tax break that the government has had in place for over 10 years, though the rules are constantly evolving. The objective is to use tax incentives to encourage technical firms to invest in developing their own innovative products, and make the UK more competitive on the global scene. The thinking behind this is that most of the UK’s economic advantage and growth is likely to come from its ability to deliver technological innovation, and the theory is that proper tax incentives can help encourage more investment in this critical kind of innovation.
R&D Tax Credits work by reducing your taxable profit (perhaps all the way into a tax loss) and thereby dropping your Corporation Tax. However, even if you don’t owe any Corporation Tax (or don’t owe much), the scheme can still provide you with cash in exchange for “surrendering” some of the tax loss that has been created. In other words, R&D Tax Credits can help whether you’re profitable or not.
There is one disadvantage to the shape of the scheme. Because it is a tax break, it is only useable after you have finished at least one accounting year. However, there’s a trick that you can use even there: although you are only allowed to lengthen your accounting year once every five years, you can shorten it as many times as you want. Some of our clients have opted to use this trick to get the tax credits early. If you have 12 months of runway, it makes a lot of sense to shorten your year to 7 or 8 months so that you get a helpful cash injection in the 10th or 11th month, allowing you to extend your runway by a couple of months just as you’re about to run out.
How much can I get?
The exact calculations can get very complicated, but here’s a simple thumb rule: as an SME, you can recover about 15-30% of what you’ve spent on R&D. If most of the spend was on subcontractors, it’ll be closer to 15%. If most of it was on directly employed staff, it will be closer to 30%. Your exact profit or loss figure, and other factors, will also impact the amount, but as a thumb rule, 15-30% of your developers/researchers’ salaries is what you’ll be able to get back.
That can make a real difference to cash-strapped startups – and just as much difference to funded startups that are spending a lot of money on developing innovative products. If you’re a large company, it’s even simpler, but less lucrative. You’ll be able to get back about 9% of your costs.
So how do I get it?
The R&D Tax Credit filing is via something called a CT600 – a Corporation Tax Return. You need to calculate the exact figures to fill in the right boxes, and also to write a clear “technical narrative” that explains why your project qualified, and produce a calculations table that shows how you worked out the figures. Bear in mind also that HMRC may query the figures or the narrative, so you should make sure you read up on the regulations on HMRC’s site.
What’s the catch?
Strangely enough, there isn’t one. The UK government has put this scheme in place (which was already successfully applied in Canada for a solid decade) because it recognises that most growth comes from innovative companies, and most innovative companies become so by doing R&D, and so it wants to further incentivise companies to invest more in R&D.
It’s a great government funding scheme – one of the most reliable that the UK government puts out. If your business does anything that sounds like it might be R&D (i.e., involves resolving “technical uncertainties” by developing new tech stuff, software, hardware, biotech or otherwise), then you should definitely look into this and collect your R&D tax credits.
Who can help me?
GrantTree helps innovative UK-based companies to access funding without giving up equity.
They help you assess whether you are eligible for R&D Tax credits and process the entirety of filing your claim with the least possible risk and time investment from yourself.
They keep a close eye on the ever changing EU and UK grant landscape and have successfully enabled exciting projects to obtain funding from these resources, ranging from a few thousand to a few million pounds. To make things as smooth as possible, they research, complete and manage the entire process, making it as pain free as possible.
They are enthusiastic about innovation and proud to play a role in facilitating it through making these resources more available. Discover how they may be able to stretch your funding: get in touch on firstname.lastname@example.org or call 0207 7488 999. Also, check out their resource at http://granttree.co.uk/tax_credits.