Top 3 Things to Know about R&D Tax Credits
Part #1
"Get paid for work you've already done"
R&D Tax Credit is precisely that. It’s a “credit” for doing innovation. The credit equals 1/3 of what you spent being innovative.
You file your claim when you file your Corporation Taxes.
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If you’re profitable, likely you file 10 months after the end of the tax year. So, right now (May 2024), profitable companies will be claiming for work done up to 30th June 2023.
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If you are not yet profitable, you can file when the tax year ends, and HMRC will send a cheque for the “credit”. These companies will be claiming for work done up to 31st March 2024. About 85% of claims are paid out within 40 days.
PRO TIP: If you’re a start-up, spending more money inventing than you’re getting in as revenue, then … File your taxes early and get a cheque back!
Part #2 - Do I Qualify for R&D Tax Credits?
"White lab coats - Not required"
Many companies are doing Research & Development (R&D). Yes, there are some hoops to jump through to get paid, but the definition of Research & Development is pretty broad.
Answer the 4 questions to the right to see if you likely qualify.
There are a few more requirements but that is the core of it.
The next step is to explain your innovation to HMRC in terms they can understand.
(1 of 4) Has your company improved something over the last year? Have you improved your product/ service? Improved a process? Made a better component?
(2 of 4) Was this improvement more than just routine tweaking? Did you have an idea, set up a project, and put a bit of effort in working this out?
I’m sorry. It’s unlikely you have a claim. But have a sleep on it. It may have been a while ago. Maybe something else will come to mind.
(3 of 4) Did you learn something along the way that – if you could tell yourself this thing a year ago – it would have been easier to get where you are now? In other words, did you have false starts/ wasted effort?
I’m sorry. HMRC is cracking down on claims that talk up your regular job. They are looking for “advances” in how things are done … not just more of the same.
(4 of 4) This thing you learned: Were you just catching up on what many other people already knew? A year ago, could you have hired someone who would have already known this stuff? They would not have had the false starts/ wasted effort?
An important hurdle is “uncertainty”. If the solution was readily available or deducible then its not a big enough improvement to count. Innovation is something you might brag about to work colleague/ competitors over a pint.
PRO TIP: Don’t struggle to find the right words. Our AI robot has been specially trained to translate your words into HMRC-speak
Unfortunately, the government won’t pay you to come up to speed on what everyone else already knows. If you just had to do some Internet research, or you just needed to hire an expert (not a genius, just a normal guy) then you don’t have a claim.
Congratulations! You likely have a claim.
The next step (below) is to take a stab at what it may be worth.
Part #3 - How much R&D Tax Credit am I owed?
"It may take most of a day to apply, but you get back £1,000s"
Get Started Today: R&D Tax Credit Assessment
If you are a micro-company (2 - 10 employees) get a FREE R&D Tax Credit Assessment with our founder, Eric Feltin, to determine whether you likely have an claim.
Worked Example
One employee (on £36,000 a year) spends 1/3 of their time doing R&D. Another (also on £36,000) spends 1/6 of their time. That means £18,000 of eligible R&D expense.
If you pay corporation tax, pay £6,361 less tax.
If you're not paying tax, don't worry. HMRC will write you a cheque for £3,348.
The more you spend, the more you get back!
What Can I Claim?
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staff costs (pay, wages, pensions, NI, …)
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subcontractors (usually only 65% of the cost)
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the cost of recruiting specialist staff
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software licenses/ subscriptions
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cloud-based hosting (after Apr 2023)
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consumables like power, water, fuel, ingredients
I'm a Sole Trader
Unfortunately, sole traders are not eligible.
But, not to worry. Convert your business into a company and pay yourself a salary. It's not as hard as you might think. And then going forward, claim for yourself!