Five Things You May Not Know About R&D Tax Relief
Having specialised in this area of tax for over a decade, we’ve come across a number of myths and misconceptions where R&D tax relief is concerned. Idle chat down the pub and half-baked stories of other companies claiming for weird and wonderful projects – generous tax reliefs breed gossip and half-truths. In amongst the gossip, there are a number of facts that go by the wayside. In this article we highlight five things you may not know about R&D tax relief.
It’s not funded by the EU
The political upheaval created by Brexit has prompted many of our clients to ask whether Brexit signals the end of R&D tax relief, given that it’s funded by the EU. Well let’s set the record straight – it’s not! R&D tax relief is solely funded by the UK treasury and the UK’s exit from the EU does not automatically signal the end of the relief. However, R&D tax relief is sufficiently generous to be classed as a notified state aid. This means that it has to be notified to the EU to ensure fair competition amongst member states. Despite this notification requirement, the relief is entirely UK funded.
It’s been around since the year 2000
To many, R&D tax relief is a recent tax incentive. This is a reasonable assertion to make as any cursory glance at HMRC’s R&D tax relief statistics shows an explosion in the number of claims from 2012/13 onwards. Despite this, the relief has actually been available since 2000, when SMEs could claim an additional 50% tax relief on qualifying expenditure (the figure today is 130%) and large companies could claim an additional 25% relief. The use of the scheme in the early 2000s was much lower than today.
Even if you’ve received a grant, you can still claim
The rules regarding grants and R&D tax relief can become a little cumbersome but the key point to note is that the receipt of a grant does not preclude a company from claiming! Before we get too excited, it’s important to note that the receipt of a grant is likely to mean any claim (for the specific project) should be made under the less generous RDEC scheme. However, this is not always the case. YesTax can give detailed advice about how to structure grants and R&D claims in order to maximise the financial benefit to the company.
There are potential claims where you would least expect them!
The rise in R&D claims being submitted to HMRC has sadly led to many companies claiming the relief on projects which fall well short of the requirements. We’ve even advised a company which had made a claim for a new menu in its restaurant (note – we advised them to retract the claim!). Despite this, there are many hidden opportunities. If you’re an accountant, be aware that YesTax has made claims for clients in several surprising sectors. These include food and drink, landscape gardening, pet supplies, farming, alcoholic beverage manufacture and even an accountancy practice! Leave no stoned unturned and give YesTax a call.
When a claim has been paid out, it can still be enquired into
There is a common misconception regarding R&D tax claims. Many advisers assume that if HMRC has paid out on a claim, the case is closed and the claim is ‘accepted’. This is a dangerous assumption to make. Payment of a tax credit breeds false confidence. HMRC has powers to open an enquiry into a return 12 months after the statutory filing date (normally two years after the end of the accounting period). Even if a tax credit has been paid, it may be subsequently challenged – and clawed back. To minimise the risk of this happening, we strongly advise using a specialist firm like YesTax to ensure any claim is robust and defendable.