Event date: 19/01/2023 Explaining the opportunities that R&D Tax Credits can Provide You R&D Tax Credits Explained What is the Research & Development (or “R&D”) Tax Credits Scheme? HM Revenue and Customs (“HMRC”) runs a scheme whereby companies that invest money on developing products, processes, or services (including enhancing existing ones), might be eligible for an incentive in the form of corporation tax relief and/or rebates. We see a broad range of clients taking advantage of the scheme to help determine investment decisions in innovation and growth. Who is Eligible? Generally, UK limited companies, in any sector, that are subject to corporation tax can participate in the HMRC scheme. If you’re spending money on innovation, you can make a claim. R&D innovation for tax purposes takes place when a project seeks to achieve an advance in science and technology. Two separate R&D schemes are operated by HMRC and which one is used is broadly dictated by the size of your organisation and funding that is provided for the R&D projects (i.e. based on turnover, number of employees, balance sheet gross assets and sources of funding). How to Apply The scheme is administered by HMRC through the corporation tax regime. The return has specific sections for a claim to be entered. It is best practice to include a report with the Tax Return in order to demonstrate how your organisation has qualified and supporting calculations for the amounts claimed. Providing this detail reduces the chances of an HMRC enquiry into a claim. Furthermore, a business can obtain advanced assurance from HMRC to receive an opinion on whether a claim would qualify. What Counts as R&D? HMRC sets out qualifying criteria on what counts: they are purposefully broad in order to achieve the objective of stimulating innovation across the UK economy. Whatever size or sector, if your organisation is taking risks by attempting to innovate, then you may be carrying out qualifying activity. Activity might include: Designing a new manufacturing process to make production more efficient Writing software code to create an app to launch on app stores Creating new recipes for consumable products A key misunderstanding is the fact that R&D doesn’t have to have been successful in order to qualify. If the company has taken the risk to innovate and the project qualifies under the HMRC criteria, then the company can make the claim. Costs incurred that are used in claims include: > Staff costs - Salary - Employer’s national insurance contributions - Employer’s pension contributions > Software costs - Allocation of software costs that relates to R&D work > Consumables - Items that are used directly in R&D work > Subcontractors - Proportion of costs incurred when engaging subcontractors in R&D Benefits of Applying If you're spending money on your innovation, you can make an R&D tax credit claim to receive either a cash payment or corporation tax reduction. The rate of relief is dependent on circumstances. An SME business has the rate of relief between 25% - 33% of R&D spend. For larger businesses, the gross rate of relief is 13%. R&D tax credits are government incentives that can transform your organisation as they provide cashflow for innovation and growth. More widely, this provides the potential to increase productivity across UK businesses and promote growth in the economy. Upcoming Changes to the Scheme In the Autumn Statement 2022, Chancellor Jeremy Hunt announced changes to the scheme, affecting both SMEs and larger organisations from April 2023. The changes reflect a shift in strategy for public support of UK innovation, as well as HMRC’s push to mitigate fraud. From 1st April 2023, the schemes overall benefit will: generally, reduce for SMEs by roughly 15% generally, increase for larger businesses by roughly 45% Purple Lime works with ambitious organisations with innovation as part of their culture. If you feel you could be entitled to an R&D Tax Claim, they have a track record of successfully leading and advising on R&D claims and would be thrilled to hear from The Entrepreneurs’ Centre community with any questions or eligibility enquiries on this topic. Guest Blogger Oli Thomas from Accountancy Firm Purple Lime We Would Like to say a special Thank You to Purple Lime but more importantly Oli Thomas for writing this blog for our members. Oli Thomas, partner at Purple Lime, is an experienced chartered certified accountant working with SME organisations helping them get the most out of their finance functions, including overseeing the firm’s R&D tax credits claim projects. Based in Corsham, Wiltshire, Purple Lime are part of the new wave of accountancy firms who can take on stand-alone tasks or act as an outsourced finance department depending on individual business needs They use the latest, cloud-based accounting technology to give customers easy access to accurate, in-depth reports and use that information to provide strategic advice to keep businesses on the path to success. You can find them on their: Website: https://www.purplelime.uk.com/contact-us/ LinkedIn: www.linkedin.com/company/purple-lime-accountancy/ And at hello@purplelime.uk.com