Ed Surman, Director at Mushroom, interviewed Mike Newnham, Quantum R&D Tax Specialists, about Research and Development (R&D) Tax Claims, for Ed’s podcast, Business With The Fun Guys. The podcast interview is available here to listen to, however we’ve taken the main points of Newnham’s teachings and illustrate them here:
The R&D Tax Credits Scheme is a simple process which rewards companies for being innovative. It can be an incredible support to business due to the implications on corporation tax.
What Is An R&D Tax Claim?
An R&D tax claim is an amendment to the corporation tax return. It tells the HMRC:
- you’ve been doing Research and Development
- what you’ve been doing
- the costs incurred
- that you’re entitled to money back under the scheme.
How Much Can I Claim?
The R&D Tax Claim looks to enhance your R&D costs by 130%, thereby reducing your profits and allowing you to pay less corporation tax. For example, if you spent £100K on R&D, this would be enhanced by 130%, equating to a £230K total for R&D.
Note that you don’t have to make a profit in order to claim R&D Tax. In this situation, you can surrender the claim at 14.5% and get this back. For example, if your loss is £230K, you can claim this back at 14.5%, as cash to put back into the business. There are no restrictions on how you can use this cash, and many businesses have used this money to hire new employees, initiate a R&D project, or to buy equipment.
There is also no limit regarding how much can be claimed which makes this scheme more accessible to small businesses who may wish to claim smaller amounts of £1K for example. There used to be a £10K limit meaning that in order to claim, your costs needed to be £50K plus.
Am I Eligible?
Most businesses don’t realise they’re doing Research and Development. However, the claims aren’t purely for technology companies, it can apply to any type of business. In order to qualify, you need to be trying to make a technical advance in order to solve a problem, where there’s not an obvious or simple solution. For example, you could be a cleaning company developing eco friendly cleaning materials or a new app. Many businesses conduct R&D at some time in their business so it’s worth reviewing the R&D tax credit scheme.
How Do I Claim?
You firstly complete your Corporation Tax Form (CT600) then you file an amendment (tax claim). Both can be done online. The amendment needs to include two other reports: a financial report containing details of salaries, subcontractors, consumables/materials/prototypes/software and utility costs; and a technical report containing details of the project(s) undertaken, the difficulties you faced, and the process involved.
Note that you don’t have to succeed in solving the problem in order to claim.
If you would like to know more about the R&D Tax Credit Scheme, please read here https://www.gov.uk/guidance/corporation-tax-research-and-development-tax-relief-for-small-and-medium-sized-enterprises
If you’d like to talk to someone about a potential R&D Tax Claim, get in touch with Quantum Tax. Their contact details are available on their website https://www.quantumtax.co.uk/
If you need help with your accounts, completing your corporation tax form or complying with other business obligations, get in touch with Mushroom https://www.mushroombiz.co.uk/
To simplify the technical terms used in the podcast, we’ve provided an explanation of each below:
- CT600: form number of the corporation tax return
- R&D claim: amendment to CT600 (corporation tax return)
- Tax credit: deduction on tax liability
- Technical advance: advance in science or technology that doesn’t already exist
- Financial report: details all costs incurred in doing R&D
- Technical report: details the technical advances, difficulties you’ve faced and how you’ve overcome them