Tax Talk: R&D claims seriously worth it

read timeRead time: 19 mins
Is it time to have that conversation about R&D, after all? Shona Barker explains the criteria for, and benefits of, making a claim.

Your very first corporation tax return might not be due until a few years after incorporation . The deadline for making your first R&D claim could be a whole year after that. In short, that gives you plenty of time to focus on running your business, innovating and, let’s be honest, procrastinating. There are many conversations you would rather put off, especially when they don’t feel directly connected to your core purpose.

If you are in the InsurTech or FinTech space, and especially if you’re a start-up, the odds are high that you have a team of people working hard to push the boundaries of technology. Yours may be a sector with infinite jargon, but it’s anything but dull. Are your people trying to fuse together technologies that weren’t designed to work as one? Are they trying to re-engineer existing processes to make them significantly more cost-efficient?

How and why to check if you qualify

The threshold for what constitutes R&D in the UK is surprisingly low. So if you think your company might be undertaking R&D activity, you should speak to an R&D specialist while you are still within the window to make a claim. R&D claims must be submitted within two years of your accounting reference date, and that’s a hard deadline. Once you miss the window, it’s closed forever.

For small and medium-sized companies, an R&D claim could be worth up to £33.35 of free money for every £100 of qualifying expenditure. Doesn’t that prospect justify having a chat to your tax adviser, after all?

What’s stopping you?

So what are the most common reasons why people are reluctant to talk to their advisers?
1. We’re not sure if what we’re doing is R&D.

Talk to a specialist and find out for sure. No one should bill you for an initial fact-finding discussion to help you figure out if there’s any scope to take a claim forward. Maybe what you’re doing isn’t R&D – but wouldn’t you rather know for sure?

2. We’re not planning to sell what we create.

You must try to achieve an appreciable improvement in science or technology. But you can keep the technical secrets in-house if you wish. Nothing in the guidelines requires you to sell your discoveries.

3. We didn’t pull it off.

As the saying goes: if at first you don’t succeed, try, try again. Then make an R&D claim. If innovation were easy, there wouldn’t be a Government incentive to encourage you to give it a go. Failure can help demonstrate why what you’re doing constitutes R&D. It’s not a bad thing!

4. We outsource our R&D overseas.

Outsourcing doesn’t necessarily prevent a claim and neither does jurisdiction. There are some details to discuss, especially if you have a large corporate investor backing you, but it’s still worth exploring.

5. We don’t use timesheets.

It might be easier to calculate a claim if you did, but your adviser can create a methodology to work around this.

6. It will take too much time.

That’s what a specialist is for. You can outsource as much or as little as you want of an R&D claim, leaving your people free to innovate to their hearts’ desire and get on with their day jobs.

How to choose wisely

R&D advisory is an unregulated market, so ask for a recommendation from another firm in the same space and check the credentials of the people you speak to. Are they qualified? How much experience do they have of making R&D claims? Will they lock you in?

It’s important, too, to get comfortable with the fee structure. SMEs claiming a repayable cash tax credit are supposed to receive cash from the Government to reinvest in innovation and keep growing. So be wary of firms charging success fees that take a large percentage of your tax refund. They may not be pricing their services to fairly reflect the time required to support you. Resist clauses that lock you in year after year even when you no longer need as much support. After all, claiming for R&D should be about growing your business, not someone else’s!

If you think you may have an R&D claim, we’re more than happy to have a conversation. But please, whatever you do, talk to a professional whether it’s us or one of our competitors. If you keep putting off that discussion, you could be wasting thousands of pounds of tax relief year after year.

This article was written by Shona Barker in our London office. For more information about how PKF Littlejohn can help you, contact us.