Research and Development (R&D) investigations on the rise
GOVERNMENT FUNDING CHANGES
In the Autumn 2018 Budget, the Chancellor announced that it will continue pouring investment into deterring the marketing and use of tax avoidance schemes. He put forward an additional £155 million to help HMRC tackle tax avoidance, evasion and non-compliance.
THE SME PAYE CAP
From 1 April 2020, any accounting periods commencing on or after will be subject to the SME PAYE Cap.
This means the amount of payable R&D tax credit that a qualifying loss-making company can receive in any tax year will be restricted to three times the company’s total PAYE and NICs liability for that year.
The reintroduction of a cap is being positioned as an anti-fraud measure to prevent abuse of R&D tax relief for SMEs which has stemmed from the prevention of fraudulent claims worth £300 million.
WHAT THIS MEANS FOR R&D TAX CLAIMS?
Due to this additional Treasury funding for HMRC, it is likely that the proportion of R&D tax relief claims will rise.
SME’s with qualifying R&D expenditure will not lose their entitlement for tax relief, however the preparation of the claims will become a more difficult process.
We expect to see a greater level of scrutiny of R&D tax relief claims going forward.
HOW WE CAN HELP
Our R&D tax team generate robust R&D claims. We have regular dialogues with HMRC which has allowed us to build a strong understand of the information HMRC require in order to accept a claim.
From our knowledge, it is clear that many businesses are failing to provide accurate details of the technological advancement in the field and how they managed to overcome technological uncertainty within their R&D activities. Creating a compelling technical narrative can help overcome these challenges.
By ensuring a sufficient understanding of your business activities and costs, we can work with you to identify qualifying activity and expenditure in order to maximise the cash saving.
We recommend having a good record keeping process throughout your R&D project that will help you support your claims should HMRC wish to investigate it.
WHAT IS RESEARCH AND DEVELOPMENT (R&D) TAX RELIEF?
RESEARCH & DEVELOPMENT TAX RELIEF
FAQS
Research and Development (R&D) Tax Relief helps innovative businesses undertaking R&D related activity claim a generous tax deduction or a cash refund from HMRC.
To receive R&D relief you need to carry out an R&D project that meets the government criteria.
Our Research and Development (R&D) specialists can guide you through the process, minimizing costs and maximizing claims.
How much cash can I get back?
Profit-making SMEs can reduce their corporation tax bill by up to 230%, e.g. an additional £130 deduction on top of £100 spent of qualifying R&D expenditure. Loss-making SMEs can choose to surrender their loss and receive a tax relief by way of a credit – a cash refund paid by HMRC of up to £33,000 for every £100,000 spent on qualifying R&D expenditure.
How do I get my money?
If you are losing money, you can claim back up to 33% of your qualifying development spend in cash. In other words, you can get up to 33p back for every £1 you spend. If you are profit-making, your relief will offset your tax liability up to the amount of tax you owe. A profit making company, startup or SME can even get cash back if its R&D tax credit is greater than your corporation tax liability. In that case, you get the amount you’re owed in R&D tax relief that is greater than your tax liability back in cash. You can get cash back as well if you’ve already paid your corporation tax – often the case when we are filing an amended corporation tax return to cover R&D expenditure for your past financial years.
How long does the process take?
HMRC generally takes four to six weeks to process a claim after submission.
How many times can I claim?
You can claim R&D tax credits after each financial period (when you submit a corporation tax return) as long as you are creating a new advancement in science or technology.
How far back can I claim?
You can claim back two financial periods. For example, you can claim as late as November 2017 for a financial year that ended November 2015.
Can you work with my accountant?
We often work alongside existing accountants. We will prepare a technical report and a claim statement that your accountant can use when submitting your corporate tax return.
YOUR SPECIALIST R&D TAX TEAM
For further information, or to arrange a free R&D assessment,
please contact Parminder Chattha (Head of R&D) or Virali Patel
on 0207 309 2222.
Parminder Chattha
Parminder is a CTA qualified Corporate Tax Specialist with significant R&D Tax experience.
Virali Patel
Virali specialises in Research and Development tax relief, an area which she has been solely focusing on since 2016.
