Recent statistics published by HM Revenue & Customs indicate the North East’s Research and Development tax relief claims are lagging behind other regions.
R&D tax deductions are not automatically given to businesses and have to be accessed through a claim to HMRC. As a specialist in R&D tax relief, I want to tackle the myths surrounding this source of significant tax saving and increase the North East’s uptake, by supporting local businesses to submit and maximise their claims.
Published in September, the statistics for 2014-2015 showed 770 claims for R&D repayment in the North East resulted in £45million of funding for the region’s businesses. This seems substantial but when compared to the North West who submitted 2,200 claims (totalling £130million in relief), and London’s 4245 claims (£725 million), it appears the North East may not be making the most of this opportunity.
Who can claim?
The scheme is geared towards innovators and problems solvers; don’t be put off by the stereotypical white lab coats that are often associated with R&D. For many businesses, R&D is something that is already a huge part of their organisation, but because it’s not directly labelled as such it is often regarded as being ineligible.
If a company is improving, innovating or developing and taking certain risks in doing so then you’re likely to be able to claim. From manufacturing and architecture to engineering and IT, eligibility is not bound by sector or industry. As long as a business pays corporation tax, it is eligible to claim for R&D tax relief.
Even if your project is unsuccessful, you are still able to receive tax relief as it is the ‘seeking’ that matters.
How can you claim?
A R&D tax relief claim has to be submitted with your corporation tax return. However, claims can also be made by amending your corporation tax return retrospectively to include a R&D relief claim. In doing this, businesses are able to make claims on qualifiable R&D for the previous two financial years.
R&D tax claims can be done by your accountant, but if you want to ensure your claim is maximised and meets HMRC’s stringent guidelines you need to speak to a specialist. Without that specialist advice, you’re at risk of making errors with your claim.
What is it worth?
For SMEs, R&D tax credits are one of the most valuable forms of tax relief available. The scheme can provide cash repayments of up to 33.35% of expenditure, which could prove to be an invaluable form of funding for many North East businesses in the coming years.
Expenditure including staff costs, new equipment, subcontractor payments, materials, overheads and even bonuses qualify under the R&D scheme and can all be claimed for. Larger businesses are subject to a lower rate under the RDEC scheme and the net cash benefit currently stands at 8.8% of qualifiable expenditure. In the first six months of this year alone our team identified £29million of qualifiable R&D expenditure, resulting in £5.8million being recuperated by innovative, problem solving companies.
Still not sure?
Demonstrating the breadth of who can benefit from this scheme, between 2014 and 2015 a massive 22,445 claims were made nationally, with over £14billion given in relief since 2000.
However, the scheme is still being underused due to the fact that many businesses simply aren’t aware of the relief or don’t have expert advisors at hand to assist them.
Businesses are also now able to receive advanced assurance for the first three accounting periods of claiming R&D tax relief. This is especially helpful for smaller organisations whereby they can apply for a claim in advance to get an indication that the report is correct. This avoids any complications further down the line meaning you can submit your claim confident in the knowledge it has been put together correctly and has already been given the nod of approval from HMRC.
With the economic uncertainty surrounding Brexit, R&D tax relief could provide an additional lifeline for many businesses in the North East. Not only do R&D tax credits provide a great way to increase cash flow and support businesses through more challenging times, but innovation as a whole is being further fuelled by the scheme with UK businesses spending an extra 31% on R&D. It’s time to start considering how R&D tax relief could benefit your business.