The government designed R&D tax relief to reward companies who were conducting risky R&D work. However, since their introduction in the UK in 2001, R&D tax credits have not always been easy to understand or implement.
While the existence of R&D tax credits has become more widely known, many businesses are still unsure how exactly the scheme works. Whether it is a lack of education, a general confusion over the scheme or the assumption that they don’t qualify, there are a number of myths or misconceptions that may be dissuading your client from claiming R&D tax credits. In this blog post, we explore how these myths could actually be costing your clients money and preventing them from receiving a well-deserved cash payout or tax reduction.
5 R&D tax credits myths, debunked
Myth 1. The R&D tax credit scheme is akin to PPI
There have been a few high-profile instances of fraudulent R&D tax credit claims over the years. In early December last year, AccountingWeb reported that three men had been convicted for fraudulently claiming almost £30m in R&D tax relief. Later that same month, six men in the West Midlands were separately arrested over a suspected multi-million-pound fraud. This misuse of the scheme could be perceived negatively as it poses questions about the scheme’s integrity.
This couldn’t be further from the truth. R&D tax relief is 100% legitimate and sanctioned by an official government body, Her Majesty’s Revenue and Customs. In recent years, HMRC has implemented extra measures to protect R&D tax credits from fraudulent claims. You now need to submit an accompanying CT600, plus computations, to make amendments to Corporation Tax returns. In fact, the increased complexity of the claims process over the years has all been in the name of security and fairness. In March 2019, the government published the main points of discussion from their consultation to prevent abuse of the R&D tax credit scheme for SMEs. The central proposition was to install limits on the amount of Pay As You Earn (PAYE) and National Insurance Contributions (NICs) that can be included in a claim. This amendment was introduced in March 2021. Click here to read HMRC’s official statement on the matter.
Another source of mistrust among businesses looking to claim R&D tax credits is that, while tax advisers are part of larger groups that are partially regulated by HMRC, independent advisors are not regulated at all. The solution here is simple; make sure the tax specialist your client employs has the required credentials and reputation in the industry.
Myth 2. The cost of hiring an expert outweighs the benefits
Your client can certainly save money by completing a claim themselves. We don’t recommend it, for the following reasons:
- Firstly, gathering the necessary information in-house and ensuring it is correct will take a significant investment of your client’s time and resources, which takes them away from the day-to-day running of the business.
- Secondly, as their accountant, you will have to take the reins in completing what could be an unnecessarily complex claim.
- Finally, any inaccuracies, however minor, could lead to an HMRC enquiry, and this may in turn mean not only wasted time but financial penalties for your client.
R&D tax credit experts don’t only check your claim for mistakes. They remain abreast of the latest HMRC guidelines and legislation and know exactly how to submit your client’s claim to get the maximum monetary benefit available. The resulting cash payout will likely far exceed the cost of employing a tax specialist and/or using specialist R&D tax credit software.
Myth 3. My client isn’t profitable, so they can’t claim
This is simply not true. Unprofitable businesses are able to surrender their losses to receive a cash credit for their qualifying R&D work, which is calculated at 14.5% of the total loss surrendered.
Myth 4. My client can only claim R&D tax credits on successful projects
A successful project is determined primarily by whether it succeeds in resolving the uncertainty it set out to resolve. However, the attempts made to resolve an uncertainty within a field are also defined as qualifying R&D work by HMRC, so even if the project was unsuccessful, it is still eligible for R&D tax relief. This makes sense, seeing as research and development involves experimentation and risk-taking.
Read more about HMRC’s definitions of qualifying R&D projects.
Myth 5. You can only claim R&D tax credits when you submit your current annual accounts
First-time claimers, in particular, tend to be under the false impression that they can only claim R&D tax credits on submission of their annual accounts. While businesses do have to submit claims during or after their annual accounts have been filed with HMRC, they can claim R&D tax credits for two previous financial periods. Your client can claim for R&D projects from either accounting period but each financial period has to have an individual filing. We recommend starting with the projects that date back the furthest as they will be the first to expire. Not doing so could cost your client the money an R&D tax credit would’ve saved them on this work.
Prevent unnecessary costs with made.simplr
made.simplr’s R&D tax credit claim software has been designed by R&D specialists who understand the pain points of R&D providers. We’re here to debunk the myths surrounding R&D tax credits, help scale up your operations, and maximise your clients’ claims, not only saving them money but ensuring the maximum in credit or relief. No risk, 100% accurate, fully automated, HMRC compliant, and cost-effective. made.simplr is the R&D tax credit software solution for you.
Book a demo today.