There are many companies carrying out research and development that aren’t aware of the ability to reduce their tax bill by making a claim for Research and Development Tax Credits.
This can make a significant difference to your company tax bill. Vipul Sheth gives an example of a company that has benefited from R&D tax credits and also provides the answsers to frequently asked questions here.
The majority of companies carry out some form of R&D, even if they don’t think of it strictly in those terms. The current definition covers both applied and pure research, as well as product development activities where an appreciable element of innovation exists.
An example of a client for whom we carried out a review of their R&D Tax Credit claim is an Automation and Control Process business. One thing to note here is that this business has invested in IT and software like many Cluster members.
A tax specialist met their existing advisers of many years’ standing. It was clear that the company required specialist assistance, but with the assistance of existing advisers and the directors.
PREPARING THE CLAIM
Both the directors and the existing advisers agreed a schedule of work that each would complete, following which a tax specialist reviewed this.
Having agreed the principles underlying the work that they did, ensuring only major projects were reviewed initially. Once this was done, if other incidental projects were identifiable, they would be included in the claim.
The initial review identified expenditure totalling over £200k that was likely to be eligible for R&D Relief.
The Directors then prepared a briefing paper supporting each of the projects for which a claim was prepared.
SUPPORTING THE CLAIM
The Directors were provided with“tools” enabling the company to “audit” their claim. This allowed the company directors to self-assess their claim. In this era of Corporate Tax Self-Assessment, this is vitally important as it protects the company and its directors from the Tax Authorities claiming that the claim had no valid basis.
Having prepared this, the company’s advisers with special assistance submitted their claim.
DEALING WITH HMRC
As might be expected, HMRC queried the claim. After some initial correspondence, a meeting with HMRC was agreed. A process was agreed and the directors were prepared for the meeting. It was important in the meeting, that the Technical Director met with HMRC. The director was able to explain the technical complexities that the company had to overcome in the development of their products.
This was important in the meeting, but the key to the claim was the method adopted and documented by the tools provided to the company. The Inspector was quickly able to see that the claim was valid, well-documented and that the company had a process which was supportable. What this means is that going forwards, the company’s claims are more likely to be accepted on the basis that the Inspector is satisfied that the processes in supporting the claims are appropriate and valid.
THE TECHNICAL COMPLEXITIES OF THE CLAIM
After some discussions on the technicalities of the claim, the company’s claim was accepted in its entirety and a claim resulting in a tax reduction of over £50,000 providing a welcome repayment to the company. As one of the directors said, “that’s an engineer for a couple of years”.
The company also most importantly has tools to support future claims without consulting expensive consultants every time they make a claim. It is worth over £15k in tax every year to this company, so having the ability to self-assess the claim is very worthwhile and there is now an internal process to ensure that the information is easily identifiable
THE KEYS TO SUCCESS IN A CLAIM:
1. Identify that the company undertakes Research & Development
2. Identify the expenditure
3. Document how the expenditure undertaken represented work undertaken in overcoming technological challenges.
4. Documenting how the claim met the requirements of the legislation
5. Identifying where the Intellectual Property rights lie.
6. Ensuring that the claim meets the legislative requirements – involve a professional tax adviser to assist you.
Contact Sheth & Co, Chartered Accountants and Chartered Tax Advisers for professional advice on (024) 76 601099 or e-mail on
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