Although R&D tax relief is an incredibly rewarding statutory tax scheme, it is often misunderstood. To help more businesses benefit from this tax reduction incentive, we’re happy to spend time educating prospective clients on the ins and outs of R&D tax relief.
Here are just a handful of the questions we’ve been asked about R&D tax relief over the years. We’ll keep this list updated as we receive more questions about how the R&D relief scheme works…
Can businesses from any sector use the scheme?
Yes, R&D is an all-encompassing tax relief scheme. It may be used by any company attempting to advance knowledge in science or technology. This means businesses from any sector, from food and drink to pharmaceuticals, can benefit from the incentive. At Hamilton Blake Consulting, we specialise in supporting architecture, engineering, and design firms with their R&D relief claims, but we have experience in software, food, and drink and beyond.
What costs qualify for R&D relief?
Not all R&D spend is eligible to be reimbursed via the scheme. The main qualifying costs associated with R&D are salaries (including employers’ NIC and pension), sub-contractor costs, software, and materials used in the production of non-saleable or exhibitable prototypes.
What sort of work counts as R&D?
As you may know, R&D is short for ‘research and development’. R&D is a specific stage within the project lifecycle. It usually happens before any construction or manufacture begins.
When it comes to the tax relief scheme, R&D is assessed on a project by project basis. To be considered R&D, the qualifying activity needs to show an advance in sector-wide knowledge in science or technology. This is a deliberately broad statement, allowing any company in any sector to potentially qualify.
HMRC wants to see that your firm has overcome technical uncertainty to advance knowledge or understanding. In plain English, this means that the solution was not obvious or easily attainable to competent professionals in your field. R&D will usually encompass several attempts, design iterations, or prototypes before success and should carry an element of risk.
Our firm is creative by nature, does that mean all our work qualifies for the scheme?
The simple answer is no. Creativity does not necessarily equal R&D: your firm could be utilising knowledge from other projects, situations, or sector resources. A creative project is only considered R&D if it uses original research and exploration to go above and beyond the established knowledge in its field.
We’re also often asked if a project is R&D purely because it is ‘bespoke’. Again, the answer is no. Just because something is complex or bespoke does not necessarily mean it qualifies for R&D. You must be able to prove to HMRC how your company uses techniques or materials to do something differently or create something novel or innovative. Otherwise, it’s simply not R&D.
Our company makes a loss, can we still claim?
Yes, your business can still benefit from R&D tax relief if it makes a loss, or if the project is unsuccessful.
The R&D tax relief scheme has two different parts that benefit SMEs. If your business has made a profit, you may use the scheme to claim a reduction on your corporation tax. However, if there is more R&D than profit, this will create a taxable loss which can be surrendered to HMRC for a 14.5% repayment called a tax credit.
What can we use the R&D relief repayments/tax credits for?
Whatever is most valuable for your business. There are no restrictions on what the money recovered through R&D is used for. The scheme intends to stimulate growth and further exploration, so business use the relief to hire extra staff members or re-use the money in further R&D projects.
How much time and resource is involved in making an R&D tax relief claim?
Here at Hamilton Blake Consulting, we strive to make the process as smooth and simple as possible. While we like our clients to feel engaged in the R&D claim process, we conduct almost all the work ourselves. The only input we require from your business is a half-day working meeting where we find out more about your R&D projects. Unlike other R&D relief advisers, we’ll never ask your business to prepare project case studies or any other documents. Find out more about our method here.
Overall, R&D tax relief is a rather brief process. It usually takes us just two to three weeks to prepare a report once we have all the information we need. Once the report is submitted, HMRC is mandated to pay businesses within 28 days provided the claim is successful.
Is there a deadline for making R&D tax relief claims?
When your business is ready to claim for R&D tax relief, you can claim for relevant projects from within the last two years. Ideally, you should claim before your company reaches its corporation tax deadline. Otherwise, your business will have to pay its corporation tax in full before receiving a refund.
Why can’t I make my own R&D relief claim?
While R&D tax relief is technically a form of self-assessment, we thoroughly recommend working with a professional adviser. Although rare, mistakes can happen, and things can go wrong. If HMRC has reason to believe a claim is fraudulent, the claimant is liable for the entire cost of the claim. This could be up to hundreds of thousands of pounds, depending on the size of the claim.
Why choose Hamilton Blake Consulting?
Here at Hamilton Blake Consulting, we pride ourselves on our ability to support clients through the R&D tax relief process. We understand R&D inside-out and have hundreds of approved claims under our belt.
Relationships are a big part of how we do things. We view our client engagements more like partnerships: we take time to build up trust with our clients, encouraging them to reach out to us whenever they have a question or concern.
As a smaller company ourselves, we understand the difference that R&D tax relief can make to a small business. We offer a contingent fee structure: our clients don’t owe us anything unless we achieve them a successful R&D claim payment. To foster the kind of long-term relationships that we’re after, we also offer a three-year price guarantee. We don’t tie clients into multi-year contracts, but we promise to offer the same price for at least three years.
To find out more about working with us, get in touch.