Research & Development Tax Relief: common misconceptions

There are several big misconceptions surrounding Research & Development Tax Relief – we come across them on a near-daily basis. Despite it being one of the most generous corporation tax breaks available, many people rule themselves out without looking into it in greater detail. But if you do look into it, you might be surprised at what qualifies for R&D Tax Relief.

Dave Philp, Head of R&D Tax at Chiene + Tait, looks at the misconceptions you might have heard.

“We haven’t created anything new so we aren’t eligible”

This simply isn’t true: you don’t need to be breaking new scientific ground to qualify. R&D tax relief covers any project that seeks an advance in science or technology. As well as creating an innovative, state-of-the-art product, this can also mean simply improving upon existing processes. If you have:

  • Been working on something that has never before been attempted;
  • Tried to improve their existing products through technological change; or
  • Looked to find a more efficient way to work,

then you will likely have scope for an R&D claim.

“We have received grant funding so can’t make a claim”

Not correct. However, receipt of a grant does throw a spanner into the works. You can still make a claim, albeit the grant may limit the total tax credit/deduction that you will get back. The legislation around grants and how they interact with R&D tax relief is extremely complex, so I always recommend speaking to a specialist to ensure that you maximise your claim.

“But we don’t focus purely on R&D”

R&D tax relief is available to companies that attempt to overcome technological or scientific uncertainties through the use of untried and untested techniques. It doesn’t matter if that is the company’s sole purpose, if there is innovation as part of the process, there will likely be a claim. That means that companies from a range of different sectors can qualify for relief.  In the past 12 months, Chiene + Tait has worked with (but not limited to) companies in the following sectors:

  • Software
  • Electricity and Gas
  • Manufacturing
  • Financial & Insurance
  • Life science
  • Construction

 “It’s not worth the time to make an R&D tax relief claim”

Companies can receive a tax credit up to 33% of the total eligible expenditure incurred. So, if you spent £100k on eligible staff costs, you could receive up to £33k tax credit, cash in hand

Granted, the rules and application process is complex and can seem daunting, but you can remove that hurdle by using a good adviser.

If you’d like a discussion about whether you can claim R&D tax relief, or if you have any questions about it, get in touch with me at david.philp@chiene.co.uk.

R&D Tax credits and Grants – how to maximise relief

Grants are an essential tool for growing a business, but did you know that by receiving a grant, it could restrict your company’s ability to claim further Research & Development (R&D) tax reliefs and incentives? In this article, Dave Philp Chiene + Tait’s Head of Research & Development Tax outlines the implications of receiving a grant and its impact on eligibility to receive R&D Tax Relief. Background reading on R&D Tax Relief, and its associated schemes (the SME and RDEC schemes) can be found in a previous article by Dave here.

There is a myth that, if a company receives a grant, it cannot claim R&D Tax relief. Whilst this is untrue, receiving a grant can throw a spanner in the works.

In a bid to guarantee a level playing field for European businesses, the European Commission restricts one Notified State Aid per project. That means if the company has already received Notified State Aid for a project, that project will not qualify under the R&D SME scheme. Any projects that have been in receipt of Notified State Aid will instead fall into the less beneficial RDEC scheme, where companies can claim 10p to the pound, rather than 33p.

Unfortunately, it is not possible to repay the Notified State Aid. Once received, the project is automatically excluded from claiming R&D tax relief under the SME scheme for the entire length of the project.

There are, however, some things that you can do to avoid any potential pitfalls. By following the tips below, it is possible to maximise your claim by combining both grants and R&D tax relief:

Know what type of grant you are applying for – firstly, not all grants are classed as Notified State Aid. As such, not all grants will qualify you for the less advantageous RDEC scheme. De-Minimis Aid, which offers up to €200,000 worth of funding, is not classed as Notified State Aid and will therefore not force the project into the RDEC scheme. In this instance, it is possible to split relief over the two schemes: subsidised expenditure will fall under the RDEC scheme, whilst the remaining unfunded expenditure will remain qualifying under the SME scheme.

Determine what project the grant relates to – the rules apply on a project-by-project basis, not on the total R&D work undertaken in the year. If you have received Notified State Aid in relation to one project, this does not affect your ability to claim under the SME scheme for any remaining projects. Likewise, if you have received Notified State Aid in relation to non-R&D activities, this will not affect your SME claim.

Look at the long-term implications – remember, once you have received Notified State Aid in relation to a project, that’s it: there is no way back. Try to consider the long-term implication of receiving the grant and how it will affect future claims. Taking a small £10,000 grant at the early stages of a R&D project may help cashflow in the short-term, however this could also affect the ability to claim R&D tax relief in future years.

Speak to people who know R&D tax relief – R&D tax relief is an ever-changing, complex area of legislation and it really does pay to speak to an expert to ensure that you are maximising your claim, whilst also planning ahead to avoid any potential pitfalls.  A quick chat at the beginning of a project can provide you with a clear and proactive action plan, leaving you with more time to run your business!

If you have any queries about R&D tax relief, Notified State Aid or De-Minimis State Aid related to investment, contact Dave Philp today at entrepreneur@chiene.co.uk.