Making an R&D Tax Credit claim could be one the best things your business ever does – but many businesses are either unaware that this potential credit is available, or believe you can only make a claim if you’re a large-scale science or technology company.
So what exactly is the R&D Tax Credit? And who can actually claim it?
Daniel Rose, Associate Partner at Haines Watts Hornchurch, demystifies the claim process and gives some examples of unusual R&D claims that show the real breadth of this tax initiative.
What is the R&D Tax Credit?
The R&D Tax Credit allows you to claim against the cost of any qualifying research and development (R&D), lowering your taxable profits and reducing your corporation tax bill.
If a business isn’t profitable yet, you can exchange that deduction for a tax refund from HMRC. So, even if you’re loss-making in the first few years, you can claim a refund to help get some funds back into the company and improve your cash-flow position.
If you’re a company with growth potential, or loss-making startup in the early years of the business, the R&D credit could be a real cash-flow lifesaver
How do you know if you qualify?
Generally, people feel that if they’re not wearing a scientist’s white coat, they don’t qualify for the R&D Tax Credit – but that’s a misconception. In fact, the credit is open to an incredibly wide range of businesses across many different industry sectors.
If you’re doing anything that advances technology, in any sector, then it’s worth having a conversation with your tax advisor and checking if there’s potential for a claim.
The key thing here, as the business owner, is to not be afraid to have a conversation with your adviser about these R&D elements. It could turn out that a 5-minute conversation leads to a tax claim that saves you thousands of pounds on your corporation tax bill.
Some unusual R&D claims that made the grade
If you’re wondering whether your business will qualify, there’s no need to worry. Over the years, we’ve seen a wide spectrum of companies benefit from an R&D claim – helping these businesses to reduce their corporation tax bill, or get the cash benefit of a tax refund.
So let’s look at some of the more unusual examples of R&D claims:
Example 1: The Pig Farmer
Pig breeding isn’t a trade you’d readily associate with advances in science and technology, but one pig farming client took the boar by the tusks and made a successful R&D claim.
The pig farmer formulated a unique approach that created some innovative processes around how the pigs were fed, and how he then bred his breeding stock within the piggery. And by developing this farming innovation successfully, he laid the foundations for his claim.
Example 2: The Second-hand Car Dealer
Selling pre-owned cars is another sector that might not immediately spring to mind when thinking about R&D, but this dealership made advances in technology that helped their claim.
The customer relationship management (CRM) system that this second-hand car company used didn’t quite do the job they wanted. So to make their CRM processes more efficient, they made some key changes and created a custom CRM system that was tailored specifically to the needs of a car dealership. As they had created a new software to do this, it resulted in a successful claim.
Example 3: Innovations with NDAs in place
Getting a new innovation to market first can be critical for some businesses – and that’s why many businesses will put non-disclosure agreements (NDAs) in place with suppliers, partners and other third-parties involved in their technological or scientific research.
The good news is that you can still make an R&D claim, even if there are NDAs in place. Although this limits the amount of detail that can be quoted in your claim (protecting your intellectual property), you can still successfully process a claim and reap the financial benefits.
Example 4: The Waste Disposal Company
The saying goes ‘Where there’s muck, there’s brass’, but you still might not think about R&D when it comes to rubbish. However, one waste disposal business did make a successful claim.
When this waste disposal company found there was no existing piece of plant to process rubbish in the way they wanted, they set up developing and building their own piece of equipment. And by creating this unique machine, they also met the conditions for having advanced the cause of technological understanding in their industry.
Example 5: The Air-conditioning Company
Providing the right environment and temperature can be an important consideration in many industries. And this particular air-conditioning business had the task of keeping their customer’s room at a specified temperature around the clock, 24 hours a day, 7 days per week.
To achieve this constant, unchanging temperature, the business had to develop a whole new system for regulating the air temperature. And the research and development they carried out gave them the foundations for an R&D claim that helped to recoup some of those costs.
Why you should make an R&D claim
If you’re progressing the technological and scientific understanding of your industry, then it makes good sense to benefit from R&D and get the reduced tax bill that you’re entitled to.
With that reduction in your tax bill, or the cash from a direct refund, you could achieve a cash injection that defines the next chapter of success for you and your business. Give yourself the best possible finance to help you achieve your business goals – that’s really where a successful R&D claim can make all the difference for an ambitious business.
Get in touch with one of our Essex Tax Advisors today to see if you have an R&D claim
Or Come and meet us at our free finance seminar…
We’re running a free two-day finance seminar on 27th and 28th November 2018.
‘Finance for Non-Finance People’ will cover a range of topical finance issues affecting your business, with an overview of the R&D Tax Credit and how it could benefit you business.
Haines Watts Hornchurch are chartered accountants and tax advisors working with owner managed businesses in Romford.
Want to know more? Call us on 01708 475220 or email firstname.lastname@example.org