There are two schemes available to companies that want to claim R&D tax credits. The SME (small and medium-sized enterprises) scheme and the RDEC (R&D expenditure credit) scheme. The RDEC incentive scheme was introduced in April 2013, replacing the preexisting large company scheme. It still fulfills a similar role in allowing large companies to access R&D tax credits. It is also available to SMEs in certain circumstances. As such, knowing about the RDEC and how this scheme operates is important as it is likely your client can access R&D tax credits through it.

People falsely believe that R&D tax credits are more beneficial for small and medium-sized businesses. The truth is that there are aspects of large companies which capitalise on R&D tax credits. So although it would appear that the RDEC offers less of a benefit at face value, your client should not dismiss the option.

Read on to find out all about the RDEC scheme – its benefits, limitations and points of contention.

What is the RDEC scheme?

The RDEC is an R&D tax credit incentive scheme administered by the UK government through HMRC. Its purpose is to create more private sector investment in innovation. As a result, it mainly targets larger UK companies. This scheme was a signal that the UK government wanted to ‘level up’ the country and maintain a strong position on the world stage.

Much like the SME scheme, the RDEC scheme allows businesses to claim back a percentage of their R&D costs. This gets delivered as a refund on their corporation tax and/or a payable tax credit. This credit is at a rate of 13% of the company’s total qualifying R&D expenditure. 

History of the RDEC

R&D tax credits were first introduced for SMEs in the UK in 2000, but it was 13 years later that the RDEC scheme was introduced. At this time, the RDEC allowed companies to claim R&D tax credits worth 10%. However, due to the taxable nature of the credit, the benefit was in actuality worth only 7.6%. This occurs because R&D tax credits are themselves taxable at the regular corporation tax rate of 19%.

On the 1st of April 2015, the RDEC was updated for the first time. At this time, the rate offered by the RDEC scheme was increased to 11%, translating to an improved benefit of 8.7%.
On the 1st of April 2017, corporation tax in the UK was cut from 20% to 19%. This is a notable development as it meant greater benefit for companies claiming R&D tax credit through the RDEC scheme.

The next update to the RDEC came on the 1st of January 2018, when the RDEC rate moved to 12%. This yielded a post tax return of 10%.

The most recent increase in the RDEC rate came in April last year. This saw the rate rise to 13%, which is what it currently stands at the time of writing. This brought the benefit from the RDEC scheme to 11%.

As the timeline of the RDEC shows, the scheme has been getting more and more attractive in pursuing R&D tax credits. The pattern would suggest further increases to the rate offered by the RDEC will come.

Who can claim through the RDEC?

The main focus of the RDEC is large companies. This gets defined by HMRC as a business that has:

• More than 500 employees.
• A turnover of over €100m and a balance sheet worth more than €86m.

As long as your client’s business is this size and based in the UK they will be eligible for the RDEC scheme. 

That said, the RDEC is also accessible to companies with fewer employees and smaller turnovers due to the following eligibility criteria:

1. Connected companies can also claim through the RDEC. The only requirement is that the combined size of both companies is over the parameters outlined above. For example:

• Company A – 340 employees, a turnover of €70m and a balance sheet worth €55m.
• Company B – 170 employees, a turnover of €40m and a balance sheet worth €33m.

, As a group they would have an employee base of 510, a turnover of €110m and a balance sheet of €88m. Together, both companies qualify for the RDEC scheme. 

2. SMEs can also claim through the RDEC scheme for a couple of reasons:

• They were subcontracted to do the R&D work in question.
• At the time they were receiving financial aid which they used to fund their R&D projects.

Both of the above scenarios have the potential to disallow an SME from claiming R&D tax credits through the SME scheme, and instead potentially allow them to claim through the RDEC route. In addition, with the past 18 months of the pandemic, more UK businesses than ever have been receiving grant funding. As such, it’s important to know about the RDEC even if your client runs an SME.

How the RDEC defines qualifying R&D activity

The RDEC effectively offers a refund on the R&D work your client has done or is doing. However, it is up to them to correctly identify the work that qualifies as R&D when applying. Just as with the SME scheme, the RDEC scheme uses HMRC’s definition of R&D work. 

This is what they say: 

‘The work that qualifies for R&D relief must be part of a specific project to make an advance in science or technology. It cannot be an advance within a social science – like economics – or a theoretical field – such as pure maths.

The project must relate to your company’s trade – either an existing one, or one that you intend to start up based on the results of the R&D’.

To translate, your client’s R&D work must have real world applications that improve a product or process. It should focus on solving a particular technical or scientific uncertainty. ‘Uncertainty’ exists in a field where a problem remains unsolved. It doesn’t matter what sector your client operates, so long as they can provide evidence of their R&D efforts. 

The scope of what qualifies as R&D is vast, so don’t dismiss anything! Have a look at our previous blog on the types of work that qualify as R&D.

How to claim through the RDEC

The first step is to calculate your client’s total qualifying expenditure:

• Work out all the costs that come under R&D referring to the appropriate definition.
• Make sure subcontractor costs and payments to external staff providers get reduced by 65%.
• Combine the costs and multiply the total by 13%.
• Add the end figure to your client’s Company Tax Return form.

Next, your client should submit the completed Company Tax Return form (CT600) to HMRC. After this gets done, they can support their claim using HMRC’s online government gateway.

HMRC specifies that the supporting information in an R&D tax credit claim should cover the following:

• How the project looked for an advance in science and technology.
• How it had to overcome uncertainty.
• How it went about overcoming this uncertainty.
• That the work could not be easily worked by a professional in the field.

Your client will have to provide supporting information for each project within their claim. This is so long as there are at least three projects in the claim, which also make up 50% or more of the total qualifying R&D expenditure. They can include a maximum of 10 projects per claim.

Benefits of the RDEC

The first step is to calculate your client’s total qualifying expenditure:

One benefit is that the credit gained from the RDEC scheme gets shown ‘above the line’. This means it is visible as income in your client’s accounts and therefore traceable. As such, the financial gains of R&D tax credits will get taken into account when the profitability of your client’s business gets examined. This can increase the investment opportunities for your client moving forward.

Unlike the previous large company scheme, the RDEC also allows for loss-making companies to claim R&D tax credits. If your client is a large company experiencing loss they can claim up to 9.7% of their qualifying R&D expenditure. Yes, this is a lesser percentage than that offered by the SME scheme. However, this percentage is more likely to translate to higher benefits for large companies.

Larger companies are by their nature in a better position to gain from R&D tax credits. Think economies of scale and larger profits. This means the average claim under the RDEC is usually higher than that made using the SME scheme. For example:

• A company claiming through the SME scheme has a turnover of £400,000 and an R&D expenditure of £100,000.

£100,000 x 130 = £130,000 (enhancement)

£400,000 – £130,000 = £270,000 (revised profit)

£270,000 x 19% = £51,300

£76,000 – £51,300 = £24,700 (corporation tax savings)

This example gives a benefit at a rate of roughly 30%.

• A company claiming through the RDEC scheme with a turnover of £1.5m and an R&D expenditure of £600,000

Original corporation tax: £1.5M x 19% = £285,000

£600,000 x 13% = £114,000

£1.5m + £114,000 = £1,614,000 (increased profits)

The increased profit also leads to an increase in tax of £21,660. As you can see, even though the percentage benefit is lower from the RDEC the value of benefit generated is higher.

Potential limitations of the scheme

The latest data on R&D tax credit claims reveals that 41% of large companies were claiming less than £50,000 last year. Given the size of these companies, the expected value of their R&D tax credit claims should be far higher. The issue here is that large companies consistently fail to recognise all of the R&D costs they could get included in their claim. The scheme is therefore limited by the lack of public knowledge surrounding it.

As you likely know, UK corporation tax is set to increase to 25% from the 1st of April 2023. This jump from 19% to 25% will have huge consequences for businesses looking to utilise the RDEC. This is because the value of the benefit generated by the RDEC is offset by corporation tax. The opposite is true for the SME scheme. There is a caveat, as businesses experiencing yearly profits under £50,000 will still be subject to the 19% tax rate and businesses with profit margins of between £50,000 and £250,000 will have a taper put in place. Beyond that, the new 25% rate of corporation tax will apply. 

Don’t go it alone

Collaborating with made.simplr makes the process of applying for the RDEC as straightforward as can be. Our cutting-edge R&D tax credit portal software makes applying for the RDEC or SME scheme easy. Although the RDEC seems quite simple to utilise, it does come with complexities. Chief among these is correctly identifying the costs your client can claim for in their R&D tax credit claim. This is especially true when dealing with large companies as the numbers can get very long (literally and figuratively). Our system bypasses any difficulties by offering integration with your client’s accounts. This is all while our tax credit calculator eliminates any risk of error when adding up the total qualifying expenditure.

Our system also grants you access to a top team of industry professionals in the field of R&D tax credits. They are on hand to advise and review your client’s application at every stage of the process. It’s our mission to ensure their claim is accurate and delivers the maximum benefit possible.

Book a demo today!

It’s true. The number of businesses claiming R&D and benefiting from R&D tax credits has been rising in recent years. It has been reported that during the most recent financial year a total of 59,265 claims were made, both through the RDEC and SME schemes. This translates to a total tax relief saving of £5.3bn.

However, the total qualifying expenditure recorded in this year was £35.3bn, making the amount of relief claimed just over 14%. Considering that the maximum possible value of an R&D tax credit claim is 33%, this indicates R&D tax credits are still being under utilised.

While the days of R&D being reserved for the medical and scientific fields are gone, there are sectors that are benefiting more than others from R&D tax credits. The reasons for this are varied. Nevertheless, if your client belongs to one of these sectors they could be in a good position to benefit from R&D tax credits. Read on to find out what they are.

The data

The data used to inform this piece has been collected by the Office for National Statistics and can be found on the government website here. It features the latest available statistics on R&D tax credits, which covers the accounting period from 2018-19. Due to the time frame of R&D tax credits, this was last examined on the 30th of June 2020. This is because the deadline for the 2018-19 accounting year was 31st March last year. HMRC then allows an extra three months to process all the remaining claims so a complete data set can be analysed.

This data reveals which industries within the UK economy are benefiting most from R&D tax credits. It does this by showing how many successful claims each industry is producing, as well as how much these claims are worth. The statistics go a step further by revealing the breakdown of the schemes that were used in each sector. In doing so, we are privy to information on the makeup of the businesses in these sectors.

Read about the types of companies that can claim R&D tax credits.

1. Information and communication

• Total SME claims – 12,165 
• Total RDEC claims – 400 
• Total RDEC claims made by SMEs – 855

This sector has thrived in recent years thanks to developments in technology, most notably in software and online media. Designing new and innovative ways of communicating is a key feature of modern marketing. As such, regardless of whether sales increase or work becomes more efficient, the methods used in this sector are likely to be R&D.

Example companies found in this sector:

• Satellite telecoms services, both wired and wireless.
• Insurance firms.
• Directories, mailing lists and book publishing companies.
• Movie production firms.
• Fund management firms

2. Manufacturing

• Total SME claims – 11,895 
• Total RDEC claims – 1,035 
• Total RDEC claims made by SMEs – 1,035

This sector has the most broad-reaching applications when it comes to R&D tax credits. This is because the development of new products and processes, or the improvement of existing ones, is something that sees companies invest in R&D. The benefit of R&D tax credits to manufacturing businesses is amplified as the additional funds always get reused. One example is in addressing changing industry standards

As seen in the figures, a large number of SMEs also benefit from R&D tax credits in the manufacturing sector as they conduct it on a small scale. In addition, SMEs are often contracted to undertake work on a part of the manufacturing process by larger companies. This allows them to claim through the RDEC.

Example companies manufacturers:

• Vehicles and industrial and electrical equipment.
• Glass, wood, paper and metal products.
• Clothing.
• Food and drink.

3. Professional, scientific and technical

• Total SME claims – 10,045 

• Total RDEC claims – 510 
• Total RDEC claims made by SMEs – 1,015

R&D tax credits are particularly valuable for the fields of science and engineering because they offset the cost of testing new technologies and materials. 

Example companies:

• Security.
• Architecture.
• Media and advertising agencies.
• PR and communications.
• Tax consultancies. 

4. Wholesale & retail trade, including repairs

• Total SME claims – 6,120Total RDEC claims – 295 
• Total RDEC claims made by SMEs – 280

Many costly R&D projects take place within this sector. From streamlining solutions to automation to software, it all involves an investment of time and money. The qualifying R&D expenditure produced by this sector is not solely focused on projects that benefit companies.

Example companies:

• Vehicle sales including repairs.
• Sale of goods including household, chemical and agricultural.
• Wholesalers of goods such as electrics, clothes and cosmetics.

5. Admin & support services

• Total SME claims – 3,085 
• Total RDEC claims – 185
• Total RDEC claims made by SMEs – 170

The growing popularity of cloud-based services and the SaaS model has made Admin & support services a prime sector for R&D. Developing these platforms and making them accessible and scalable often involves conquering uncertainty.

Example companies:

• HR.
• Call centres.
• Tour operators.
• Recruitment.

*The number of claims is not an indication of the number of companies within these sectors. This is because companies are not limited to a single claim per year. Your client can apply under multiple schemes, or they may have their accounting periods overlap during the year in question.

You can read about the timeframe of R&D tax credits and how to apply if your client is a startup here.

made.simplr can help your client claim R&D tax credits

If your client isn’t a part of any of the top five fields for claiming R&D tax credits, don’t worry, they are just as eligible. Though they might be unsure of what sort of work they can claim for, and in turn how much their claim is worth. Made.simplr’s online tax credit portal software will make this process clear and efficient with access to many useful features. 

Input your client’s accounting information quickly and easily to get an accurate quote. Then consult our team of experts and ensure your client gets the maximum benefit from their R&D tax credit claim.

Book a demo today!

A common misconception among businesses looking to claim R&D tax credits is that they can only claim for successful projects. Not so! In truth, unsuccessful R&D projects can be claimed in much the same way as successful ones. The reason for this is that HMRC wants to encourage innovative behaviour within UK firms.

HMRC are also understanding of the inherent risk versus reward that comes with R&D work. Often small and medium sized companies are put off from conducting R&D work because of potential losses. However, with R&D tax credits available on all projects regardless of their success, the reward is always worth the risk.

How to recognise a failed project

Guidelines on the meaning of R&D for tax purposes are outlined by the Department for Business, Innovation and Skills. Here is what they have to say about unsuccessful projects:

‘Not all projects succeed in their aims. What counts is whether there is an intention to achieve an advance in science or technology, not whether ultimately the associated scientific or technological uncertainty is completely resolved, or resolved to the degree intended. Scientific or technological planning activities associated with projects which are not taken forward (e.g. because of insurmountable technical or commercial challenges) are still R&D.’

The takeaway? R&D is a process. For the purposes of R&D tax credits, it only matters that the process took place, not whether it was successful. Here are some examples which will hopefully sound familiar:

• Your client’s project might only partly solve the uncertainty.
• They develop a prototype that doesn’t fulfill its intended function.
• Their new tool developed during the project is just as efficient as the old one.
• A new experimental process intended to reduce costs or time is instead more costly and time-consuming.

All of these circumstances indicate a failed R&D project or at least that it has been unsuccessful. What is important is that there is an intention within the R&D work to better the field, along with the evidence to show this.

Read more about the four ways to find out whether your client’s project qualifies for R&D tax credit.

How to claim R&D tax credit on a failed project

The process of claiming R&D tax credits on failed projects is just the same as claiming for successful ones. This is because the benefit from R&D tax credits is always calculated using your client’s R&D expenditure. HMRC is not concerned about the profits generated by R&D. This is reflected by the fact that R&D tax credits are also eligible for loss-making companies. So even if your client goes into the red due to their R&D efforts, successful or not, they can still balance the books by claiming R&D tax credit.

There are two requirements in order for your client to claim on an unsuccessful project:

• They must be a UK company that pays UK Corporation Tax.
• They must be conducting work that conducts R&D in the form of an innovative product, service or operation. This includes an intention to conduct R&D work.

The key is for your client to prove that they took the necessary steps in conducting R&D. This occurs during the technical report step of an R&D tax credit application. This phase allows your client to provide supporting evidence on the projects within their claim.

Your client should also be aware that they can claim R&D tax credit on any work done two years after their most recent accounting period. This time frame for claiming R&D tax credits means your client may already have unsuccessful projects waiting to be included in a claim.

You can read about all the types of work that qualify as R&D here.

Benefits of claiming on a failed R&D project

As mentioned previously, R&D can be very costly to undertake. As a result, businesses often see the prospect of R&D as one that is too risky. However, if your client claims R&D tax credits for their failed projects this can offset their losses. The amount they can recoup is directly proportional to the total qualifying R&D expenditure within their project. This is due to the fact that R&D tax credits are calculated as a percentage of R&D costs.

The benefits of claiming R&D tax credits on unsuccessful projects go beyond the financial ones though. A problem within a certain field may take multiple R&D projects to be solved. In fact, it is usually the culmination of work over many years that brings about groundbreaking innovations. As such, having the confidence to start to engage in R&D work increases your client’s likelihood of a real breakthrough. Trial and error is almost always a part of overcoming a technical or scientific uncertainty. That’s why R&D tax credits are there to help your client progress towards achieving success.

How made.simplr can help

The difficulty in an R&D tax credit claim comes from identifying what your client can and can’t claim for, as well as sourcing evidence of their R&D. All of the above are made simpler with the use of our online tax credit portal software. There’s a reason for the name after all! With us, your client will be able to organise and prepare their claim in a fast and efficient manner. This is thanks to the reports and analytics features offered by made.simplr. What’s more, the system offers a mobile-friendly interface so your client can access their claim at any time.

What your client will also get from made.simplr is access to a team of experts, well versed in processing R&D tax credit claims. This, coupled with full integration with Xero accounting, will allow your client to easily maximise their claim. You can be sure no qualifying R&D projects will get missed, and certainly not the failed or unsuccessful ones.

Book a demo today!

A mistake companies commonly make when applying for R&D tax credits is overlooking qualifying expenses. Often they tick off the obvious R& D expenses such as consumables and staffing costs, and leave it there. The reality is that the list of qualifying R&D expenses is long and doesn’t only feature obvious costs. Without knowledge of it, your client won’t know the true value of their claim. As a result, they may not want to even pursue R&D tax credits in the first place.

The bottom line is that your client could be missing out on savings by overlooking certain expenses. This blog post is here to make sure that doesn’t happen. Read on to learn about the commonly overlooked expenses your client should be aware of.

The importance of identifying qualifying expenses

The worth of your client’s R&D tax credit claim gets determined by the qualifying projects and expenses. This is because the value of an R&D tax credit claim gets calculated as a percentage of the total qualifying expenses. Therefore, any overlooked expenses will directly reduce the amount your client is saving through their claim.

On the other hand, including all the available R&D expenses in a claim will ensure that it gets maximised. This will guarantee your client gets the most financial benefit possible from their R&D tax credit claim. Identifying your client’s qualifying expenses ahead of time also allows them to plan for the future. As your client’s accountant, having this accurate projection of how much of a saving they will make is very valuable.

Read more about the range of qualifying R&D expenditures here.

Commonly overlooked and missed R&D expenses

Far too often businesses miss out on claiming for expenses that qualify as R&D. These expenses usually come from processes that occur naturally when R&D projects are being undertaken. Some get derived from events in a company’s lifecycle that happen quite regularly. There is a misconception that R&D expenses have to break new ground with revolutionary new products to qualify. Not so. Money spent making improvements to existing processes and products will also qualify as R&D expenses.

• Clothing

Clothes have the potential to qualify as R&D in many ways. A lot of the time innovation involves processes that are dangerous. Operating heavy machinery, for example. As a result, protective clothing gets included as part of necessary health and safety measures. 

Clothes can also qualify as consumables if they get damaged beyond use during the R&D project. However, clothes bought before your client’s two most recent accounting periods cannot get included in a claim.

You can read about the timing parameters of R&D tax credit claims here.

• System migrations

Companies usually migrate their systems to improve their data storage and task allocation. This often involves design changes, improvements and the overcoming of technical uncertainty. As a result, the process of moving the data may incur qualifying R&D costs. Nowadays, system migrations utilise cloud-based technology to boot. Migrations without the use of this modern technology have not typically qualified for R&D tax credits.

One instance where system migration always takes place is during the merger of two companies.

• Efficiency-improving automation

This is often a feature of workflow and manufacturing processes, such as assembly lines. Here automation tools take the form of robotic servo arms, or automated shelving and labeling systems. With regards to robots specifically, there is technical uncertainty in how they will perform and where is best to place them. These factors result in trial and error, the costs of which can get included as qualifying R&D expenses.

It must be noted, however, the material costs of the robot cannot be included. R&D only concerns the testing and design costs.

• Replacements for an obsolete part of a product/process

This is a common occurrence when a certain part of a product is no longer made by an external supplier. If an adequate replacement cannot get sourced, the product business must innovate. This will prompt design changes, material changes and potentially changes to the product’s functionality. 

Furthermore, when the obsolete component becomes outdated, using new technology can be the best course of action. This will involve a lot of testing and maybe the development of prototypes. Both of these things and more can get included in your client’s R&D tax credit claim. If they can provide in-depth evidence of their R&D process, then their qualifying expenses will broaden. There is also potential to include the designers’ wages, as well as those of the engineers.

• Machine learning

The use of machine learning or artificial intelligence (AI) results in processes becoming quicker and more efficient. It also combines well with the other products and processes featured in this list. For example, AI could help educate your client on how best to use their new robotic arm. So although machine learning has become widespread in fields such as manufacturing, it has applications in almost all processes. As such, this is definitely one to consider when making your client’s R&D tax credits claim.

• Cloud computing/networking

There is a bit of a caveat to this one, as it is still in the process of being included as a qualifying cost by HMRC. However, it would be unhelpful not to include this as so many businesses now engage in networking and cloud computing.

Leasing a cloud platform/server results in innovation by granting greater computing power to other businesses. This only applies if the cloud gets accessed outside of the provider’s premises. The provider incurs a cost of housing and running the necessary physical computing power. These cloud services qualify as R&D because they get used to visualise design concepts and beta test software programs.

made.simplr will make sure your client doesn’t miss out

The advice here is for your client to take their time and think outside the box. Businesses don’t always have that luxury though. That’s where made.simplr come in.

Our state-of-the-art R&D tax credit software makes the claims process as easy as possible. In addition, our team of experts guarantee to accurately identify all your client’s qualifying R&D expenses, including expenses you or your client might have overlooked. This will ensure your client’s claim delivers them the maximum benefit possible.

Book a demo today!

If your client’s business is a startup or in its infancy, claiming R&D tax credits can be immensely beneficial. The significant financial benefit of R&D tax credit is invaluable for development. At this early stage, they might say they’re too busy to research claiming R&D tax credits. However, if your client is an SME or a young business, claiming R&D tax credits before their first tax return will yield great results. Freeing up technological assets and saving thousands of pounds in tax credits is a huge developmental boost.

First things first, when is the best time to apply for R&D tax credits? Knowing HMRC’s schedule and timing parameters for processing claims is vital. Being aware of this information will help your startup client plan their R&D tax credit claim. Read on to find out how to complete it easily before their first tax return.

How far back can I claim?

If your client wants to claim R&D tax credits you need to know when their accounting period starts and ends. HMRC places a time limit of two years on claims. This is due to the fact that R&D tax credits are a form of Corporation Tax relief. Typically, the deadline for amending a Corporation Tax Return is 24 months after the end of the relevant accounting period.

• Example: A business files accounts on December 31st each year. It has until December 31st 2021 to claim any qualifying activities it undertook between January 1st 2018 and December 31st 2019. After December 31st 2021, the business can no longer claim R&D tax credits on activities from the accounting period 2018-19.

Many businesses make it so their accounting periods end on March 31st. This is for simplicity’s sake, as it is in line with the tax/fiscal year. This also removes the risk of any confusion of which time scale to use when it comes to applying.

‘What if my client undertook a project before the start of their earliest claimable accounting period?’ We hear you ask. Don’t worry, they can still claim qualifying expenditure from the project if it continues into the two most recent accounting periods. Though this will not be the entirety of the R&D costs of the project. This also applies to work your client is in the process of completing. However, it must prove to be resolving a technological or scientific uncertainty.

Read about the projects that qualify as R&D here.

What if my client is a startup?

The first year of business for startups tends to be less structured when it comes to accounting periods. When a business gets registered with Companies House, its incorporation date is set at the date of registration. This is also called the nominated registration date. This means the accounting period for the new business is set at twelve months from the end of that month. Of course, this may prove not to be so convenient moving forward.

As a startup, your client’s first few accounting periods can be anything from 6 to 18 months before they submit their first tax return, meaning the accounting period relevant to their claim won’t be two years long. This is important as it will dictate the number of qualifying activities that can be a part of the claim. This in turn will influence the worth of the R&D tax credit claim.

• Example: A new business or startup is set up on 12th June 2022. Its first accounting period starts from the 1st of June that year. This period then lasts for 16 months, ending on 31st October 2023. The company has until 31st October 2025 to claim any qualifying costs between 31st June 2022 and 31st October 2023.

Remember, whatever the length of your client’s accounting periods, the deadline remains two years from the end of each one.

To read about how to check the eligibility of your client’s business here.

Help for startup claimers

Startups claiming R&D tax credits for the first time are able to benefit from HMRC’s Advance Assurance scheme. This allows first-time claimers to understand their eligibility for R&D tax credits made prior to submitting a full claim. This takes the pressure off your client’s R&D tax credit application and allows them to plan ahead. Advance Assurance is a resource that is criminally underused!

Your client can apply if:

• They are an SME.
  Planning to, or already have done, R&D.
  Part of a group where none of the other companies have claimed R&D tax credits.

Here is the information you will need to have to hand:

• Your client’s company accounts.
• Your client’s company registration documents.
• Correspondence from HMRC.
• Any previous tax returns (not relevant for startups or infant companies).
• The name of the individual your client would like to put forward to discuss their R&D application with HMRC. This person should have direct knowledge of your client’s R&D activities.

You can find full details of how to apply on the Gov.uk website.

Still unsure? We’re here to make it simple

made.simplr offers online R&D tax credit software that makes it easy to track your client’s projects in relation to their accounting periods. In this way, they’ll always know when R&D activities are approaching a claims deadline. Inputting financial accounting data into our system takes no time at all due to integration with Xero. This is a big time saver, as you and your client no longer have to find out when R&D work got completed. Quickbooks and Sage integrations are on the horizon too!

By signing up for free to our system your client will also gain access to a team of seasoned R&D tax credit specialists. Many of our team have worked within HMRC processing tax credit claims. As a result, they can offer startups invaluable advice on when it is best to apply for R&D tax credits. Furthermore, they can help them secure Advance Assurance by reviewing their application and giving suggestions.

Book a demo with us today.

Finding out how much your client can claim through R&D tax credits can be difficult for many reasons. As a result, it makes sense to use an R&D tax credit calculator to give their claim an estimated worth. This will allow your client to get a preview of how much they will be saving by claiming R&D tax credits.

Calculating the value of an R&D tax credit claim by hand is difficult due to the number of factors that must be considered. Things like qualifying costs and the size of your client’s business, to name a few, are all taken into account. It can often be hard to see how each of these areas interacts with one another. That’s where a tax credit calculator comes in.

Although an R&D tax credit calculator does not provide a %100 accurate total value of a claim, read on to find out about the benefits and limitations of using one.

How to calculate the R&D tax credits

Having a ballpark figure of how much your client can claim is important as it will allow them to plan ahead. This is relevant as R&D tax credit claims can take a few months to process. During this time, they will be able to reassign R&D assets and prepare to allocate the additional resources.

Using an R&D tax credit calculator will also make your client aware of their company size and overall claimability. This information is important for maximising an R&D tax credit claim down the line.

Read more about tips to maximise an R&D tax credit claim here.

How an R&D tax credit calculator works

All R&D tax credit calculators will ask your client to input information about their business. The software then uses these numbers to calculate how much their claim is worth. This will be a percentage return on the total.

The factors that affect the percentage of return your client is eligible for, are as follows:

• The size of the company.
• The amount of corporation tax your client pays each year.
• If your client’s business is profit or loss-making.

An SME company is one that:

• Has fewer than 500 staff on the payroll.
• Has a turnover of less than €100 million.
• Has a balance sheet worth less than €86 million.

Any business exceeding one of these figures is considered a large company.

Loss-making SMEs can still claim through the SME scheme, though they have a few more hoops to jump through. Oftent loss-making companies are able to claim the maximum percentage of R&D tax credits. So whatever the position your client is in, they can claim anywhere from 14.5% to 33% as an SME and up to 13% as a large company.

For more info on the types of companies that can qualify for R&D tax credits click here.

• Example calculation for a profit-making SME

Let’s say an SME has a yearly profit of £350,000 and a qualifying expenditure of £80,000. With Corporation Tax before an R&D tax credit claim of £66,500, the calculation is as follows:

£80,000 x 130% = £104,000 (enhancement – the SME scheme allows for an ‘enhancement’ of R&D expenditure by 130%)

£350,000 – £104,000 = £246,000 (revised profit)

£246,000 x 19% = £46,740 (Corporation Tax)

£66,500 – £46,740 = £19,760 (Corporation Tax saving)

This results in an R&D tax credit claim worth approximately 25% in savings. Although the numbers will vary between companies, this percentage saving is quite common for SMEs who are still profit- making after R&D tax relief.

• Example calculation for a loss-making SME

In this example, the SME has made a £200,000 loss with a qualifying expenditure of £75,000. As a loss-making company, they will have corporation tax of £0. This is because there are no profits to tax.

£75,000 x 130% = £97,500 (enhancement)
£200,000 – £97,500 = £297,500 (loss after deducting enhancement)
£75,000 x 230% = £172,500 (maximum losses to surrender for R&D tax credit/cash payment)

At this point, the business has a choice. They can either keep their losses to carry forward into the next tax year. (This would be to use them to offset future profits against tax). Or, option two is to surrender the revised losses to HMRC for a cash credit. This cash credit is at 14.5% of the total value of the surrendered losses.

If losses get surrendered in this scenario then:
£172,500 x 14.5% = £25,012.50

This results in a R&D tax credit saving of 33%. The business will carry forward a reduced £125,000 in losses.

Other factors that determine the value of a claim

The percentage saving generated by an R&D tax credit calculator can be hard to visualise. This is why you must accurately determine your client’s qualifying expenditure.

As talked about in our previous blogs, the value of a claim gets dictated by the number of qualifying projects and costs your client has. After putting your client’s details through an R&D tax credit calculator, the next step is to identify and include these extra details. This will give your client a complete picture of how much their R&D tax credit claim is worth.

However, it takes a lot of time and knowledge to accurately maximise a claim. This is because many individual costs have unique conditions attached to them. These caveats affect the percentage amount of the cost that can get included in a claim. As a result, totalling up your client’s qualifying expenditure can result in complications.

Get an accurate quote with made.simplr

Find out how much your client’s claim is worth with our R&D tax credit claim calculator.

That’s only the start of the software and expertise we offer to make claiming R&D tax credits easy. Our tax specialists guarantee to calculate your client’s claim with 100% accuracy while maximising its worth.

Book a demo with us today.

Often businesses are unaware that the projects they are working on qualify as R&D and thus allows them to claim R&D tax credits. They might be too preoccupied with the actual running of a business to investigate. They might not even be aware of the opportunity to claim R&D tax credits on their projects.

These are likely the reasons if your client is an SME. This is because leveling up and expanding a business requires constant attention. The work required at this developmental stage is also draining on time and resources. Whatever the reason though, these are the types of projects that are most likely to qualify as R&D.

It’s therefore especially important for SMEs to know what projects they can claim for, as they will benefit the most from the financial boons.

Your client is missing out

The scope of work that is R&D is vast and ever-expanding. In recent times, the Covid-19 pandemic has forced companies to innovate.The global pandemic has led to more employees working from home, budget cuts, and companies having to re-think business functions and processes. This has resulted in more and more businesses exploring technological spheres and looking to software development. As such, it’s very likely your client’s work will qualify for R&D tax credits.

The following broad project areas are ones that qualify for R&D tax credits:

• Adaptation of standard technology for niche uses.
• Development of new systems and processes.
• Improving the performance, efficiency and/or capacity of existing systems and processes.
• Designing and producing technically improved products.
• Packaging solutions (improving product shelf life for instance).

As discussed on our previous blog about qualifying R&D expenditures, the claimable costs within each project are mostly made up of general running costs. As a result, there is always a large amount of expenditure that is claimable within each project. Your client could therefore be missing out on financial benefits if they don’t identify all their qualifying R&D projects.

What qualifies a project as R&D

HMRC states on the UK government website, “The work that qualifies for R&D relief must be part of a specific project to make an advance in science or technology. It cannot be an advance within a social science – like economics – or a theoretical field – such as pure maths. The project must relate to your company’s trade – either an existing one or one that you intend to start up based on the results of the R&D”.

However, using this definition can still be unclear. To break it down, your client should consider if they can answer the following four questions. This will help them figure out if a project qualifies for R&D tax credits. If the project achieves any of the following, it can qualify as R&D.

1. Does the project overcome uncertainty?

Uncertainty exists when an expert in the relevant field doesn’t know how something gets done, or if it is even possible. All available evidence should be on hand when deciding if there is uncertainty. It will help to get experts from within the company to review whether there was uncertainty or not. It is also possible to enlist the judgement of external experts. However, those that have worked on the project themselves will be most knowledgeable.

In overcoming this uncertainty, your client’s project will be on the frontline of technology within the field. Furthermore, the existence of uncertainty shows your client’s company has forged wholly original ideas and methods in the project.

2. Has it sought a scientific or technological advance?

The purpose of the project must be to benefit the field as a whole, not only your client’s business. In other words, every business within your client’s industry should be able to utilise the advancement their project will result in. For example, developments in food technology resulting in vegan alternatives that are easier to produce. This will lead to lower production costs, allowing food companies to reduce prices for consumers.

What if a service, product or process gets developed by another company? It can still be an advance even if it is not publicly available or known about.

3. Can your project show research, testing and analysis have taken place?

This is the equivalent of showing your working in a math question. Your client should be able to prove their project has undergone changes and overcome obstacles. The trial and error of researching, testing and analysing shows the difficulty of the work. It also justifies the importance of the project.

This is an essential aspect of the technical narrative, which is a crucial part of the R&D tax credit application. Therefore, it’s worth considering at an early stage if your client has the necessary project data to support their claim. Detailing the inner workings of the project will also help show how your client overcame the uncertainty in their project.

4. Could another professional in the field conduct this work?

The answer here should be no, as it shows your client’s advance is covering new ground. Keep in mind your client will have their own professionals working on the project. They will be able to explain the difficulties and uncertainties they face. Otherwise, finding previous unsuccessful attempts at finding a solution will provide an answer.

Unsuccessful projects or projects currently in progress can still qualify for R&D tax credit claims, so don’t dismiss these out of hand.

Get expert help with made.simplr

Using eligibility calculator software and enlisting the help of R&D tax specialists is a surefire way to ensure your client identifies all their R&D qualifying projects. made.simplr provides both!

Our R&D tax credit software was developed by experts with intimate knowledge of what qualifies as R&D projects. With it, your client is able to reliably and quickly identify the projects they can claim for. For accountants, our claims management and Xero integration features enable you to complete work for your client efficiently, and on time.

Book a demo today and find out how much you could be saving your client.

Claiming R&D tax credits is a huge financial boon for any business. With more time allowance and resources to level up their business, SMEs benefit most. However, the process of claiming R&D tax credit carries with it the risk of an audit by HMRC.

Although R&D tax credits are still underutilised by companies, the number of applications has been steadily rising since they were introduced in 2000. The number of claims made in the 2017/18 tax year were 31% higher than the previous one, for example. This has increased the level of scrutiny from HMRC in its claims review process. 

The outcome of an HMRC audit can cause significant damage to a business, in terms of the time it takes to conduct as well as the possible monetary penalties. This is an eventuality your client will want to avoid at all costs. That’s why we’re here to tell you how.

The risks of an HMRC audit

Most of the time HMRC conducts an audit when a company’s application contains suspicious information and/or data that doesn’t add up. It could be that HMRC wants more information on specific areas of the application. Other possible factors include your client’s tax position and their relevant industry sector/field.    

More often than not HMRC conducts investigations before any money changes hands. Although this does not mean the risk associated with an HMRC audit is diminished. It can take anywhere from a few months to a few years for an inquiry to reach its conclusion. During this time, your client will be diverting people, time, and resources to solving the problem. This is a massive drain on the business’s operating potential, not to mention a big logistical headache. A poorly handled investigation can also put your client in bad stead with HMRC, compromising future interactions on tax matters.

If an inquiry is launched after a tax credit payout, it can result in dire financial consequences. Your client might be forced to repay the money received as part of the tax credit, plus up to 100% of the total qualifying expenditure they outlined in their claim. HMRC can also enforce an interest charge on the repayment of any money spent.

Ways to reduce audit risk

As discussed in our previous blog, Six easy steps to claim HMRC R&D tax credit, there are a few steps in applying for R&D tax credits. As a result, there are many opportunities to reduce your client’s risk of an HMRC audit.

• Recognise what qualifies as R&D

The Department for Business, Energy and Industrial Strategy (BEIS) provides guidance on the work that qualifies as R&D. They say, “when a project seeks to achieve an advance in science or technology. The activities which directly contribute to achieving this advance in science or technology through the resolution of scientific or technological uncertainty are R&D”.

Your client should keep this wording in mind and consider how the innovations they’ve made contribute to their field. The start and end of qualifying projects should be included to ensure all bases are covered. This will be important when writing the technical narrative of your client’s application.

Your audit risk is enhanced if your client lists costs that don’t contribute towards R&D projects because HMRC will reject the claim and launch an investigation. We discuss qualifying R&D expenditures here.

• Use best practices when collecting R&D data

You should present your client’s R&D project data clearly and in depth. This becomes complicated when calculating the percentage of different expenditures that are claimable. For example, some employees might have split their time between R&D and non-R&D projects.

Some of the best practices involve tracking relevant R&D data at various points throughout research projects.

• • Assign an R&D manager: someone within each project whose job it is to track R&D activities as they are undertaken. This is a role best allocated to a person in a managerial position.
  • Source code comments: in qualifying software development projects, comments can be implanted in the code to record the development process. This helps the claims processor visualise the link between the work and what is being claimed.
  • Create a dedicated R&D email: create an email address used by you and your staff with regards to all matters concerning R&D costs and projects. When it comes to preparing your client’s application, this will be a huge time-saver and help ensure nothing is missed.
• Double-check your numbers

An easy way for HMRC to justify an audit is if numbers in an R&D tax credit claim application don’t add up. Therefore, recording and laying out your client’s financial data accurately is a must to avoid an audit!

• Review using technical staff

The staff allocated to your client’s R&D projects are the ones who know the most about the qualifying work that is being done. As such, they are the best people to use to document and review the relevant sections of the application process. Their technical knowledge can be used to catch corner cases that may affect the claim’s eligibility.

A final point: sometimes HMRC will randomly audit companies that apply for R&D tax credits, so don’t panic if you’re facing an investigation.

Put your client’s mind at ease by using made.simplr

The risk of an HMRC audit should not discourage your client from pursuing an R&D tax credit claim. made.simplr offers state-of-the-art R&D tax credit software that makes inputting your client’s data quick and easy. By connecting with the Xero platform your client’s company information is fully integrated with their claim. This allows us to guarantee the accuracy and security of any R&D tax credit claim.

By working with us your client will also get access to a team of R&D tax credit experts eager to provide for their business. Many of our specialists have themselves previously worked for HMRC as claims reviewers to boot. They are on hand at every stage of the application process to remove any trace of audit risk for your client.

Book a demo today.

If you want to get the most benefit for your client’s business through R&D tax credits, you have to maximise your claim. This will involve doing a lot of research and sometimes it’s difficult to even know where to start when preparing your application. It’s worth it to put in the time and effort though, as without it your client could miss out on thousands worth of savings. This financial injection has proven to be vital for many small to medium sized businesses, particularly during the Covid-19 pandemic.

This blog post is here to give you a taste of the sort of expert tips that’ll give your client the most bang for their buck when applying for R&D tax credits.

1. Figure out your company size

Although almost any company can apply for R&D tax credits, HMRC offers tax credit incentives for firms that are either SMEs or large companies. You should familiarise yourself with the following definition HMRC uses to calculate the size of companies:

• SMEs: Less than 500 employees, a turnover of less than €100 million and a balance sheet worth below €86 million.
• Large companies: More than 500 employees, a turnover of more than €100 million and a balance sheet worth over €86 million.

SMEs qualify for the SME scheme while large companies qualify for the Research and Development Expenditure Credit scheme(RDEC).

The SME scheme is far more generous than the RDEC, offering a much higher percentage of claimable R&D expenditure. As such, your client will be able claim more on their R&D tax credits as a small or medium size company.

Read more about these schemes on our previous blog here. 

2. Know what you can and can’t claim

Deciding what costs your client will claim is going to determine the scale of the tax savings they will benefit from. The more total costs your client claims, the more valuable their R&D tax credit will become. However, if any of the costs claimed turn out to be incorrect then they could be faced with an HMRC investigation. This is why knowing the extent of the costs your client can claim is so important.

Some things to note:

• Always work within your client’s company’s financial year, not the tax year of HMRC. Any expenses outside the relevant financial year, qualifying or not, are not eligible to claim.
• You cannot list your client’s directors as subcontractors when calculating R&D expenditure. This means you also can’t claim directors’ dividends as qualifying R&D expenditure. HMRC cross-checks companies’ listed directors so make sure this is done right.

You can find a comprehensive list of qualifying R&D costs here.

3. Receiving grant funding won’t always compromise a claim

More businesses than ever have received some form of financial aid due to the damage done by the Covid-19 pandemic. It’s likely your client falls into this category and they’re resultantly skeptical about whether they can still claim R&D tax credits. This doesn’t mean their projects are unclaimable though.

If your client’s grant falls under the category of notified state aid then they unfortunately will not be able to claim R&D tax credits under the SME. They are still open to pursue a claim through the RDEC though. Non-notified state aid will affect the eligibility of your client’s projects depending on how much funding was contributed towards them.

Read about how Covid-19 funding will affect R&D tax credit claims here.

4. Utilise your losses

Just because your client’s company is unprofitable doesn’t mean they should be discouraged from applying for R&D tax credit. Utilising the ‘surrendering a loss’ mechanism allows unprofitable companies to obtain a short term cash injection from HMRC. 

In this way, the total loss is exchanged for cash credits at 14.5% of the original value.

If your client expects to be profitable in the next year we wouldn’t advise surrendering their losses. This is because they can be used to offset the tax on their profits in future.

If your client is concerned about this looking bad on their books don’t worry, enhancing their loss through the tax incentive schemes won’t be reflected in the accounts.

5. Spend time on writing a great technical narrative

Outlining your client’s R&D projects, the work they’re doing and how it fits within HMRC’s definition of R&D, is really the meat and potatoes of any R&D tax credit application. Here are some do’s:

• Keep it short and concise – this helps your client’s application to be as easy to digest as possible.
• Don’t use language unique to your field – you want HMRC to understand the problem your client has solved, as well as the lengths they’ve gone to to solve it. Using jargon can create confusion. 
• Write from a technical point of view – prove that your client has overcome a technical uncertainty or made advances in technology. That’s what HMRC are looking for.

6. Check your numbers

This can be a time consuming process but sitting down and checking your figures match on every part of your client’s application is a must. This includes their profits and loss, tax calculations, along with the contents of their CT600. If all your client’s costs are consistent with each other it helps HMRC to process the claim more easily.

Put the tips into practice with made.simplr

There’s a lot of nuance regarding some areas of an R&D tax credit application. That’s why getting expert help and advice when completing an application for R&D tax credit is guaranteed to ensure a maximised claim. At made.simplr our online R&D portal software allows you to input your client’s data, clearly laying out where and how they can maximise their claim.

In addition, our experts are on hand to answer any questions that come up during the process. Making an R&D tax credit claim also presents many opportunities to make mistakes. Our experts remove any risk of this while garnering the maximum reward for your client. It’s our mission to ensure your client benefits from R&D tax credits to the highest degree they can. Plus, our all-in-one R&D tax software offers a great solution to scaling your R&D practises.

Contact us for a demo today.

10 or 20 years ago it was the norm for R&D tax credits to be reserved for companies focused on science. In particular, those eligible were in the pharmaceutical, technical and/or manufacturing sectors. The range of companies that can qualify for R&D tax credits is now an ever-expanding list, however. HMRC themselves say, ‘the scope of qualifying expenditure for R&D tax credits ought to evolve to reflect modern trends in research and development’.

While the range of businesses conducting valuable R&D projects has been expanding for years, in recent times, innovation has been fast-tracked due to the restrictions of the Covid-19 pandemic. Most companies have been forced to rethink the way they operate, be it in terms of staffing, networking or sales. This has also opened up new fields for investment. For example, video conferencing, social apps and online marketplaces were all suddenly in high demand.

As a result, it’s more likely than ever that your client’s company can qualify to claim R&D tax credit. Failing to check that their business qualifies for R&D tax credit does it a great disservice. This is because you are missing an opportunity to obtain a ‘no strings attached’ form of financial aid for them.

Read on to find out if your client’s company could be eligible to qualify for thousands of pounds worth of tax credits and refunds.

What qualities do HMRC look for in companies?

R&D tax credits are designed to encourage companies to spend more on research and development projects, which is done by offering a reduction on the company’s tax bill – though only on the expenditure involved directly with the R&D project. The end goal? Increasing the UK’s investment in innovation and maintaining the UK’s status as a global leader in technology.

The HMRC government website states that R&D tax credits ‘can be claimed by a range of companies that seek to research or develop an advance in their field. It can even be claimed on unsuccessful projects’. As such, when it comes to qualifying for R&D tax credits it’s not so much about the company type, but the type of projects your clients are undertaking.

As of 30th June last year, the latest available data shows there were 59,265 claims for R&D tax credits in the financial year 2018-9. Of these, 52,160 were small to medium size businesses. One explanation for this is that small businesses have much more to gain from R&D tax credits than larger ones. This is because R&D tax credits allow companies to conduct R&D projects more easily, thereby enabling growth. Another reason could be that more SMEs are actively looking for ways to make savings, for the simple reason that most of the time smaller companies have tighter profit margins. Finally, the scheme for SMEs allows them to claim a far higher percentage refund on their expenditure tax than larger companies, but more on that later.

How to recognise a qualifying business

HMRC still has a few qualifiers that businesses must meet before they are able to qualify for R&D tax credits.

First, HMRC requires that the business pays corporation tax in the UK. This is to confirm that the company is based in the UK. It must also be a limited company. Partnerships, sole traders and public liability are not eligible to qualify for R&D tax credit. HMRC also outlines what it considers as research and development work that qualifies for tax credits. The businesses conducting this type of research will in turn be most likely to qualify for R&D tax credits.

As mentioned earlier though, almost any businesses nowadays can find projects that will qualify for R&D tax credits. Other than the requirements outlined above, businesses can qualify from any industry. That being said, there are still some areas that are more likely than others to include R&D tax credit qualifying companies. Some notable fields and their company examples are as follows:

• Admin and support services – HR, recruitment, call-centres, tour operators, rental and leasing.
• Wholesale and retail trade – Vehicle sales and repairs, retailers and wholesalers of food, electric goods, clothing, cosmetics etc.
• Information and communication – Insurance, publishing of books, software and directories, software development, video and sound production.

If your client’s business falls into any of these areas then it’s likely they’re conducting projects that will qualify for R&D tax credits. In that event, we strongly suggest investigating if they qualify.

Which scheme does my client’s business qualify for?

The first step is working out what type of scheme your client is going to apply to. This will fall into one of two categories based on the business in question, which will dictate the tax credit incentive you must use. The amount of tax credit you are able to claim depends on the size of the company you’re doing the accounts for.

SME scheme: As the name suggests, this is a scheme available to small and medium sized businesses. To qualify you must:

• Have fewer than 500 staff on the payroll.
• Have a turnover less than €100 million.
• Have a balance sheet worth less than €86 million.

The scheme allows companies to claim back up to 33% of their qualifying R&D expenditure. This is in the form of a payable tax credit, a tax reduction, or a combination of the two.

The SME scheme works by offering an enhancement to the percentage of qualifying costs that are being claimed. Most eligible R&D costs are claimed at 100%, with some notable exceptions. The scheme allows companies to deduct an additional 130% from their qualifying costs, for a total of 230%.

What if my client’s business isn’t making a profit?

Even if your client’s company is currently making a loss you will be eligible to claim through this scheme. Although this will only be up to 14.5% of the company’s surrenderable loss for that accounting period. While surrenderable loss is essentially the same as R&D expenditure, it has its exact definitions outlined in section 1044 and 1045 of the scheme.

Loss-making companies can increase the percentage of their R&D tax credit claim by surrendering their loss. Doing this means the business will not carry the loss forward into the next financial year. Every £1000 of loss surrendered can be exchanged for a cash credit worth £145. Coupled with the enhancement mechanism, it is possible for loss-making companies to hit the maximum 33% tax credit on R&D costs. Businesses that expect to be loss-making in the following year might want to avoid this, however. This is due to the fact that surrendering the loss means it cannot be used to offset your corporation tax liability later down the line.

Businesses that break even aren’t left out of the SME scheme either, although they do get the worst deal. This is because at break even, companies have no tax corporation tax to reduce or refund. They also don’t generate R&D expenditure as their revenue is equal to spending.

Advance assurance: SMEs are able to apply for advance assurance to guarantee acceptance of their R&D tax credit claims. The company must have completed R&D projects or be planning to undertake R&D. They are also eligible if they are linked to a group of companies, none of which have claimed R&D tax credits before. It’s not necessary to apply for advance assurance, though it does remove the risk of filling out an application in vain.

You cannot apply if your client is a corporate serious defaulter or has entered into a Disclosable Tax Avoidance Scheme.

Getting expert assistance with R&D tax credits will remove the need to apply for advance assurance.

Research and Development Expenditure Credit (RDEC):

This scheme is open to large companies, which are defined using the same parameters outlined earlier. So for the purposes of this scheme, to count as a large company you must:

• Have more than 500 employees that work for you.
• Have a turnover in excess of €100 million.
• Have a balance sheet worth over €86 million.

From 1st April last year this scheme allows for businesses to claim back 13% of their qualifying R&D tax credit.

Small businesses can claim this scheme if they are subcontracted to do R&D work for a large company. SMEs can also claim if they have received a grant or subsidy to complete an R&D project, something that has become increasingly common due to the Covid-19 pandemic.

Related: How Covid funding will impact R&D tax credits.

Still unsure? Costs affected by business type

It’s important to note that the scheme your client qualifies under will have ramifications when it comes to the amount you can claim for certain costs. You should consider this when figuring out if your client’s company qualifies, as this will confirm if the time and effort applying for R&D tax credit is worth it. It almost always is, but nevertheless, qualifying costs are something experts are on hand to advise you on.

The main example here is the cost of subcontractors – work done by individuals external to the business. These costs are included at 65% when calculating the total qualifying R&D expenditure. However, subcontractor costs can be accounted for at 100% if you are one of a pair of connected companies.

To read more about all the costs businesses can claim when applying for R&D tax credits, head to: what expenses qualify for R&D tax credit.

Connected companies

Connected companies are two businesses linked through some form of shared control. There are a number of definitions for this:

• One person has control of both companies.
• Two people who are themselves connected have control of both companies.
• A group of two or more people controls both companies.

All the above require that either you hold more than 50% of the voting rights of the other company, or they hold over 50% over you.

Connected companies qualify to claim R&D tax credits. However, the turnover, balance sheet and staff numbers of both companies must be included when considering eligibility. This is also likely to influence which R&D scheme your client is eligible for.

Finally, as mentioned previously, connected companies that qualify benefit from an increased claims percentages on certain R&D costs.

Partner companies

While there are similarities between partner companies and connected companies, partner companies share a lesser level of control over one another. As a result, each company in the partnership still retains autonomy. Here are the definitions of partner companies:

• One company has control over 25% of your voting rights or capital.
• You control at least 25% of another company’s voting rights or capital.

Just as with connected companies, when you’re working out if your client qualifies for R&D tax credits a portion of the other company’s staff, turnover and balance sheets should be included. This will be in proportion to the percentage of control that one company has over the other. For example, if a partner company has control of 31% of another’s voting rights, only 31% of the aforementioned company information qualifies. As with connected companies, this is a necessary caveat to keep in mind regarding your R&D incentive scheme.

Check if you qualify with made.simplr

At made.simplr we’re here to make every stage of securing R&D tax credits easy and secure, and it starts with working out if you qualify. If you’ve read this far you’ll now know that figuring out if your client’s company qualifies for R&D tax credits is not always obvious. Equally, choosing the incentive scheme that is a fit for them sometimes involves a lot of nuance. This is before taking into account how various company aspects will affect claim amounts down the line. Our team of seasoned experts can help with all of this.

Before submitting a claim, why not use made.simplr’s R&D calculator. This allows you to enter your client’s company details and determine their eligibility straight away. It also gives you a quick estimate of how much they are able to claim.

made.simplr’s software is the easiest way for your firm to provide added-value to your clients without taking any risk. Track, plan & manage every R&D Claim from beginning to end.

Book a demo with us today.