Research & Development is a subject which is often in the news, and was mentioned again in the most recent budget. It is an area which, when used properly, can be beneficial for limited company businesses. It can reduce taxes now or in the future, or even generate cash repayments. However, it is an area which needs to be used with caution.
There are a large number of companies who solicit for R D tax claims work, and it’s not unusual to receive letters or cold calls on this subject. These companies all offer different scopes of work and different terms and conditions, so any approach from a company you don’t know needs to be approached with caution.
Research and development tax relief can be claimed over the last 2 tax years if applicable. So if you qualify you should make your claim quickly so you don’t miss any of the filing deadlines. It can be a complex area and HMRC have a list of criteria, summarised below:
- You must be seeking to advance science or technology within your industry. This advance must be for the field as a whole, not just an advance for your business. This advance cannot just be existing technology that your company or industry has used for the first time.
- The R&D work must be part of a specific project you have set up, aimed at making these advances.
- The project must relate to your company’s trade, or one you intend to start if the R&D works.
See HMRC for further details:
What steps to take
In order to apply for R&D tax relief a detailed technical report is required explaining how your specific project looked to advance science and technology within your industry, along with any obstacles and/or uncertainties that were overcome in the process. The project would need to show that the advance would benefit industry or the sector as a whole rather than just your specific business. The report also needs to explain why a competent professional could not easily work out the advance. This report also has attached tax calculations showing the details of the claim.
It is our opinion that research and development claims need to be made cautiously. As with other aspects of HMRC’s self assessment regime for all taxes, the fact that you have filed a claim and received the relief does not mean that it will remain unchallenged by HMRC. Claims going back 6 years can be challenged, and therefore important that you are both comfortable that the claim meets the criteria, and the company making the claim will still be around in six year’s time to defend the claim if necessary. This future possible defense of a claim should be part of the contract from the outset. It should not cost any additional fees.
If you think your business might qualify for R&D tax and you would like to explore this area further please get in touch with us. We can point you towards reputable companies who specialise in this field who would be able to advise you fully. Initial meetings are usually free of charge.