R&D is not just about white coats and test tubes or carrying out Nobel Prize winning research. It is a common misconception that R&D tax relief is restricted to scientific research or technology companies. Any company may claim the relief for activities which seek to resolve technological or scientific uncertainties or make advancements.
The UK government’s stated aim is to create the most competitive corporate tax system in the G20. Whilst the reduction in the headline corporation tax rate from 28% to 17% has attracted the most attention, a key component of this increased competitiveness relates to tax incentives for developing and exploiting new technology in the UK.
There are two key tax strategies for incentivising R&D in the UK, R&D tax relief which rewards the development of new ideas and intellectual property and Patent Box which rewards exploitation of the new intellectual property created. To find out more about each click on the links below.
How to make a claim
At its most basic level you would identify the costs, calculate the relief and enter it in the relevant boxes on the corporation tax self assessment tax return. There is no specific record keeping requirement for the purposes of claiming the relief and the company is not required to submit supporting documentation with the claim. However, HMRC deal with these claims in specialist units and in the case of query would require detailed analysis.
The time limit is two years from the end of the relevant accounting period.
There are generally three steps to making a successful R&D tax relief claim:
- Identifying the qualifying R&D projects;
- Identifying the eligible costs; and
- Preparing and submitting the claim to HMRC and, if necessary, negotiating the claim with them. The claim will typically comprise a report setting out the projects undertaken and the explanation as to why they constitute R&D.
How we can help
It may be possible for a company or a company’s accountant to arrive at a basis for a claim, however, the relief requires 146 documents just to guide HMRC's own staff (see www.gov.uk/corporation-tax-research-and-development-rd-relief) and 103 sections of tax legislation It needs an in-depth understanding of both how the relief works and how it may apply to your business activities. So, using a specialist, like Claritas Tax, has advantages. We have dealt with over £7 million of R&D claims for every aspect of industry, from web designers to water flow engineers and from retail search engines to foundries. Our experience spans a period of more than 13 years of working with clients to formulate claims for R&D tax relief. As a result, we quickly and accurately compile your claim. With our experience, we know how important the initial submission of the claim is, which is why our claims are always supported by a full and clear description of the claim.
A typical R&D claim would involve us going to the client’s premises, initially speaking with the key person with the overview of the business together with the head of finance and then have detailed discussion with key staff involved in the R&D. We would then quantify the claim and prepare a draft report to accompany the claim. Depending on the complexity of the project, further visits and reiterations of the report might be necessary. Once our client is happy with the claim and has approved the report, the claim is submitted to HMRC along with the tax return. If HMRC question the claim, we will lead in answering the queries.
We normally prepare R&D tax relief claims on a contingent fee basis, so that, if the claim is unsuccessful, there is no fee. However, we are happy to work with you on which ever basis best suits your business- the key is that we will always agree fees with you in advance so that there are no nasty surprises later on.
The availability of a 10% rate of corporation tax on profits arising from products that benefit in some way from a patent.
Whilst the tax incentives for UK companies to undertake R&D are now quite generous, there has historically been no incentive for companies to exploit the resultant intellectual property (“IP”) in the UK. That has changed with the introduction of the Patent Box in April 2013.
How we can help
Once the decision has been taken to apply the Patent Box, the calculation of Patent Box profits for the purposes of your corporation tax return will inevitably complicate the tax computation. We will, of course, be very happy to assist you with preparing those tax computations.
For more information on how the Patent Box can benefit your company, please call us.