Research and Development is key in developing new ideas which help you jump and stay ahead of the chasing pack. It’s not as hard as you think, and you’re probably doing a lot of the right things already.
Every day, you and your team probably address a range of technical challenges from which you learn – this is Research and Development. You apply these lessons to work you perform for future clients, and each time your process or product gets better. The faster you learn, the better you get. You’re probably doing it without thinking about it. But – if you knew what you were doing and could manage it – you’d probably get even better, even faster.
There’s a simple way that you can achieve this, and it won’t cost you a penny. This is because we’re going to tell you how the government’s tax department wants to fund this for you. You’re probably starting to question the truth in that already, and are feeling a little suspicious, but stay with me.
HMRC want to HELP your Research and Development?!
HMRC grant tax reductions and rebates for eligible research and development activities. Why would they do this? The answer’s simple. The government are more interested in supporting you to develop cutting edge ideas, than taking small taxes from you. Still don’t believe me? Think about it: You invest in Research and Development, you get better, you sell more, your tax bill increases. They’re a clever bunch, who want a win-win scenario. They let you invest more in Research and Development now, so your tax bill will be bigger in the future. But you don’t mind, because you’re making more money too! So, everyone wins. Reasonable estimations suggest that on average, Research and Development investment pays a return of 20% year on year (see https://bit.ly/2Op6ESB).
What are Research and Development Tax Credits?
Simple – learn about HMRC’s Research and Development Tax Credits, and how you can develop a system to nail your claims. Our website – www.randdtaxclaims.com – is an excellent starting point! To understand a little more about this, we need to set a few benchmarks. Firstly, you need to know the basics about the scheme, so here goes.
Research and Development Tax Credits allow you to receive a tax rebate or refund for eligible activities you perform. Making it as simple as possible for the purpose of this read, if you’re performing work which:
- is technically or scientifically challenging
- represents a genuine advance against the status quo
- would challenge another competent professional
… then you’re in the right ball park. Now, add together the salaries, sub contract costs, materials, software costs and a few other bits and pieces you’ve spend on your eligible activities, and you’ll be able to claim between 11% and 33% as a rebate or refund. It is a little more complex than this (of course), but that’s all you need to know for now.
So back to the main story – how can you capitalise this?
Businesses declare these costs when they submit their annual financial return to HMRC, and receive their reduction from their corporation tax bill (or as a cash rebate where relevant) – so they don’t receive the benefit until many months after performing the technical activities.
But what if we’re able to know what our claim would be way in advance, and plan with this in mind? Planning with your Research and Development claim in your financial forecasts can mean, that for the same budget, you can actually perform a greater amount of eligible technical work, generating better solutions, producing intellectual property to increase the value of your business, developing a cutting edge above your competition, and making your clients happier.
Let’s look at an example for a planned Research and Development project:
- Project A has a budget of £100k.
- 30% of the project is on eligible (claimable) activities
- On submitting the annual return, the company will save (on average) 25% of the eligible spend which equates to £7.5k against their corporation tax bill
- This means, their effective spend for the project has been £92.5k.
Let’s assume that we take this rebate into account before the project starts:
- Project B has a budget of £100k – but we’re able to cashflow a little more.
- 30% of the budget was assigned to the eligible technical activities, but taking into account our prospective claim we’re going to increase this from £30k to £40k.
- On submitting the annual return, the company will save (on average) 25% of the eligible spend which equates to £10k against their corporation tax bill
- This means, their effective spend for the project has been £100k – matching the budget.
HOWEVER – the client has had an extra 10K (33% more than originally allocated) to develop technical solutions. This suggests Project B may be a lot more desirable than Project A, leading to a happier client. You’ll also have more intellectual property to use with your next projects!
So what’s out point? For the same budget, you can actually achieve a lot more than you realise by using initiatives like HMRC’s Research and Development Tax Credits carefully. Alternatively you can go with the flow, see what you spend and use your savings towards next year’s projects – either way, you’re a winner!
What can you do to maximise Research and Development?
To answer this, I’m going to tell you what we do on our Radar365 programme, which helps clients plan their Research and Development activities to maximise their claim.
STEP 1: The first thing we do is run a strategic planning session to help you understand what you can and can’t claim, taking into account the type of projects and activities you’ve got planned for the year ahead. That way, you can plan your activities in advance but also be aware of what you can also claim when you’re forecasting for future projects.
STEP 2: We would then advise your people on exactly what they can claim, helping capture data for eligible activities. The reason for this is that you’ll most likely be performing a range of eligible activities without even knowing it. This will will provide you with a further nice, tasty rebate when it comes to the time for your claim. You can even re-invest these rebates in Research and Development next year! You need to make sure you have a system in place to capture this, too.
… and winning from Research and Development is honestly that simple.
The only challenging bit is knowing exactly what tasks are eligible with confidence. And we’re happy to help you here too.
So, now you know how to make your projects better, improve your intellectual property, increase your customers satisfaction levels and stay ahead of your competitors at no additional cost. What have you got to lose? Make sure that you give yourself the best competitive advantage and plan your future activities with Research and Development Tax Claims in mind!
For more information on Research and Development Tax Credits or our Radar365 programme, please contact firstname.lastname@example.org
You might be interested in the following pages:
About R&D Credits: RandD Tax Claims – About R&D Tax Credits
Our Radar365 Service: R&D Tax Claims – Radar365 Annual Support