You could be missing out ....
'We're not eligible', 'Haven't got the time', 'We've got it covered', are all very common phrases we hear. There IS a lot of detail involved, but not for you if you use our 'R&D Made Accessible' system. Rather than reading through mind bending HMRC jargon and seeminlgly contradictory criteria, we think your time is best spent registering on our system and working through the process.
We've made this as easy for you as possible, you can spend 10 minutes a day on it (it saves all your inputs as you click through the stages) or do it all in one sitting. In most cases an hour or two is sufficient. You might want to get some input from your technical team to help in some areas, but you'll get a feel for this as you go.
Here's some guidance, if you can answer 'Yes' to these 3 questions, you're in a strong position for a successful claim:
1) Is your company eligible to pay corporation tax, a going concern and not in liquidation or insolvent?
2) Do you think you have spent money on R&D related expenses? (ie Labour, consumables, utilities, software etc)
3) Did your comapny initiate the R&D? (ie did your company create the R&D rather than have it subcontrated to it?)
R&D tax relief is generous
Providing additional corporation tax savings of up to £26,000 per £100,000 of qualifying spend (under the SME scheme). One of the key roles of innoKey Solution's is to help companies maximise the benefits available, whilst submitting technically robust claims. One of crucial areas in preparing a claim is to correctly identify the qualifying costs. We often find that there is some confusion over what can be included in the claim as not all costs associated with a project are eligible.
Costs which are eligible for R&D tax relief must be revenue expenditure for tax purposes – generally speaking, a cost which is written off to the profit and loss account as opposed to capital expenditure (relief is available for R&D capex). The expenditure also needs to be allowable for tax purposes – frequently we come across cases where clients want to include dividend payments to owner/employees in the claim as part of the staff costs but dividends are not an allowable deduction for corporation tax.
Qualifying costs need to fall within specific legislative categories:
- Staff costs – often this is the most significant part of the claim. This includes the salary of the company’s employees (i.e. individuals with a contract of employment with the company), plus the employers’ NIC and company pension contributions for staff who are directly involved in the R&D activity. The employee must have a contract of employment with the company and if they do not spend all their time on R&D (which is unusual) their costs must be apportioned (and records maintained of how this apportionment is made). Staff involved in ‘Qualifying Indirect Activities’ can also be included in the claim – this includes activities such as maintenance of R&D equipment, administration of the R&D project and training required to support an R&D project.
- Consumables – recently subject to a tightening up from HMRC, the consumables category covers items which are used up or transformed in the R&D process i.e. no longer available for their original use. This can most easily be seen for manufacturing based R&D, where the company is producing a number of prototypes which are scrapped during the R&D process. This specifically includes light, heat and power – and again, an appropriate apportionment of these costs should be made where required.
- Sub-contract costs – a tricky issue but essentially, if a part of your R&D project is outsourced, then 65% of the costs can be claimed. There are different rules if you are connected to the sub-contractor and HMRC does not allow relief for costs where you are simply obtaining advice from a self-employed consultant. A common sub-contract cost is testing.
- Software – the costs of software licences used in the R&D project are eligible to be included in the claim.
- Externally Provided Workers – this covers the costs of staff which are not directly employed by the company but who are hired from an external staff provider. As with sub-contract costs, this claim can be limited to 65% of costs unless there is a connection between the company and the staff provider – this can often be seen where one group company employs the staff and recharges the R&D company for their costs.
- Contributions to independent research – companies claiming R&D tax relief under the large company scheme can claim for payments made to certain public bodies, e.g. universities.
So, what can't we include? If its not in the list above, it probably won't be included. Here are some costs that are often included, but musn't be:
- Rent – for buildings in which R&D takes place,
- Staff benefits in kind – excpeting employers pension contribution, everything else, company cars, health insurance etc have to be excluded.
- Travel costs – whilst the time spent travelling can be included, the cost of travel can't. For instance, flights, car hire, hotel and other related expenses when travelling overseas to a testing centre can't be included.
- Data and telecommunications costs – Whilst heat, light and water are included, telephone and data usage arent.
- Production costs – If a prototype is sold to a customer, that has to be excluded. This is because the uncertainty has passed and all related production costs should now be part of the cost of goods sold.
innoKey Solution's bespoke system ensures all claims are processed in accordance with HMRC guidelines. Our tax experts have decades of expereince and ensure that nothing is left to chance.