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 your company is loss-making, you can claim back up to 33% of your qualifying spend by surrendering a loss created by the relief for a payable cash credit. In other words, you can get up to 33p back for every £1 you spend.
If you are profit-making, you can claim back up to 24.7% of your qualifying spend, i.e. 24.7p for every £1 you spend. This is a reduction in your corporation tax liability. Where you have already paid your tax bill, the relief is given in the form of a corporation tax repayment. It is possible for the relief to create a loss, in which the loss created by the claim can be surrendered for a cash credit from the government.
How long does the process take?
Our R&D tax team can prepare your claim within 1 week of receiving all the necessary information. Once the claim is submitted, HMRC generally take 4 to 6 weeks to process a claim.
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?
The R&D incentive is a Corporation Tax Relief. It is inserted in the Corporation Tax Return and the deadline for amending this return is 24 months after the end of your accounting period. Therefore, you are able to claim back two financial periods. For example, a business with an accounting year end of May 31st 2019 has until May 31st 2021.
Can you work with my accountant?
We work with a large number of external accountants. Our team are happy to liaise directly with your accountants to obtain all the relevant financial documentation. We will prepare a technical report and a claim statement that your accountant can use when submitting your corporation tax return.
FURTHER R&D TAX ADVICE
CONTACT US FOR FURTHER INFORMATION, OR TO REVIEW YOUR R&D CLAIM.
PARMINDER CHATTHA
Partner - Corporate and R&D Tax
Parminder specialises in Research & Development Tax Credits, leading the R&D department at Jeffreys Henry LLP. Since joining the Firm in 2015, he has been working closely with both SMEs and large businesses to analyse and maximise their Research and Development claims. He has so far secured over £70 million in R&D tax relief and credits for our clients.
KATE GREENHOUGH
R&D Director
Kate is a CTA qualified tax specialist with significant R&D tax experience. Kate has over 10 years of specialist experience in advising start-ups to PLC analyses, preparing and submitting robust R&D tax relief claims and Patent Box claims in line with the latest HMRC guidance. Her sector experience spans FMCG (fast-moving consumer goods), automotive, financial services, healthcare, manufacturing, construction, and food and drink.
