Frequently Asked Questions - R&D Tax Credits
Isn't this relief only for companies involved in science or high tech industries?
No, the relief is also intended for companies who are involved in producing new or substantially improved products where there is uncertainty.
What is the definition of substantial?
There is no definition of what constitutes substantial but in other areas of tax law substantial is defined as more than 10%. So for example it could be a 10% increase in efficiency, life, productive yield etc.
What is 'uncertainty'?
An uncertainty is defined as an unknown, problem or issue that is not 'readily resolvable by a competent professional in the industry'. Were there issues within the project that the technical people were unsure on how to resolve ? Are there any aspects of the project that needed adapting? Did the company undertake any projects which failed?
What is a competent professional within the industry?
HMRC will normally accept the technical officers of the company as 'competent professional'. We will include CV's of the relevant technical people within the report to support this.
HMRC do not like giving money back, will this highlight the company to HMRC?
R&D Tax Credits are part of the governments drive to create a knowledge based economy and they actively encourage qualifying companies to claim R&D tax credits. The SME scheme is notifiable state aid under EU rules and the more companies making use of this credit strengthens the government's case for keeping the relief. HMRC are sympathetic to R&D claims and the specialist inspectors are normally very cooperative and reasonable.
Will this affect where my tax is dealt with?
Yes, because R&D tax credits is a specialised area, HMRC have set up specialist teams around the country. Once the claim has been submitted the tax affairs of the company will be transferred to the appropriate district; each specialist district deals with a specified industry, for example Cambridge deals with bio/pharma and Cardiff deals with software.
Will transferring my file to another district highlight me company to HMRC and increase the risk of an enquiry?
In our experience, it is an advantage being dealt with by one of these specialist units. The inspectors in the units have a better understanding of R&D so it is easier to explain why your activities are R&D. One of the problems we had prior to the setting up of these units was having to deal with inspectors who had no understanding or experience in this area.
In our experience the transfer does not increase the risk of an enquiry. HMRC have a well established sampling and risk management system to select cases for enquiries and claiming R&D tax credits should not have any effect on this.
I am a loss making company if I claim a repayment under either the SME or RDEC scheme is there a risk that HMRC will open an enquiry at a later date and claim the money back?
Obviously, for many companies the repayment is a welcome boost to their finances but can also be a potential threat to the company if it is claimed back at a later date.
While we cannot guarantee 100% that this will happen it is a very remote risk. In the 13 years we have been dealing with these claims we have never known this to happen.
Unlike some advisers, we do not just send HMRC the 'numbers'. We provide a comprehensive report to HMRC covering every aspect of your claim and why it qualifies. The report covers every aspect with the aim of providing the inspector with all the answers to the questions he may ask; this way the reports are processed very quickly and normally without question.
HMRC understand this issue and although they are not obliged to, they will read the report and ask any questions at the report stage. This means that once the report and numbers are 'agreed' you have an extremely high degree of certainty.
The only risk is that the report contains incorrect information but this should be avoidable because we will work closely with you to ensure that all the information is correct.
I undertake R&D as a subcontractor and have been told that I cannot claim R&D tax relief?
This is partly correct. You cannot claim the relief under the SME scheme but you may be able to claim under the large company scheme. To qualify under the SME scheme, you need to be an SME but any company irrespective of size can claim under the large company scheme.
Our R&D is subsidised and I understand I cannot claim R&D tax credits relief?
The rules on subsidised expenditure are quite complicated. If the subsidy is notifiable state aid all the expenditure over the whole project is excluded from the SME scheme. If it is not notifiable state aid, the project may still qualify under the SME scheme but the subsidised expenditure is excluded from the calculation.
However, you may still be able to claim under the large company scheme.
How do I know if my subsidy is notifiable state aid?
If it is notifiable state aid it should be stated in the documentation but we would always check this directly with the subsidy provider as part of our service.
I have a subsidy which is notifiable state aid but would be better of repaying it and claiming R&D tax credits. Can I do this?
Unfortunately not, once the subsidy has been claimed the whole project is excluded from the SME scheme but you may still be able to claim under the large company scheme.
Does your business qualify?
We have the expertise to quickly understand your business and focus on whether you qualify. If in our opinion you do, we work with you to substantiate the figures, prepare a report and handle the submission and negotiation with HMRC.
Generally, the turnaround time is around 12 weeks.
Our simple, 7 stage process
Our aim is to not only advise you, but to support you by taking as much of the work from you as possible. We have devised a simple 7 step process which will lead you from the first discussions with us to receiving the cash or tax benefit. Although we will be preparing the claim and dealing with HMRC, you will always be in control and we will provide you with regular updates and a timetable.