The R&D tax relief scheme is a government supported regime designed to encourage innovation in science and technology in the UK. With our impending exit from the EU, the Government has placed research and development (R&D) front and centre of its plans for the future of the UK economy. In March 2020, the Chancellor announced a record increase in public investment in R&D – committing to reaching 2.4 per cent of GDP and a total of £22 billion per year by 2024 to 2025.
Currently the R&D tax regime is divided into two schemes: one for large companies (LC), and one for small and medium sized enterprises (SMEs). The benefits range from roughly 10 per cent for LC claims, to an extremely generous 33 per cent for some SMEs. Despite the regime being a form of tax relief, there is no need for a company to be profitable to successfully make a claim. For many loss-making companies the benefit is received in the form of a cash credit, often within 28 days of submission. This injection of cash is all the more important in the current COVID affected economy.
Technology, media and telecom companies, particularly start-ups, are often considered to be amongst those most likely to make use of the regime. This is borne out by HMRC’s September 2020 R&D statistics which show that 23 per cent of the total SME claims made and 26 per cent of the total value are made by ‘Information and Communication’ companies. Further encouragement is offered by the fact that the number of first-time claimants has increased dramatically over the last three years, with an average of 13,400 new companies benefiting from the regime each year.
However, despite relief being available for both small and large companies, eligible R&D is often overlooked outside of activities carried out by development teams. Activities within the broader IT team are often not considered in claims. Even when they are, the inexplicable omission of particular cost categories can mean that companies are not receiving the benefit that their hard work merits. In short, the regime still offers significant opportunities for new start-ups as well as historical claimants.
Whilst the number of claimants in the sector has increased, so has the level of scrutiny applied by HMRC. HMRC has recently started to utilise its in-house team of trained software specialists, meaning that it’s more important than ever that the technical documentation provided to support any submission is written by a specialist with a comprehensive knowledge of the relevant legislation and guidance.
We can help
We use a combination of specialised R&D tax and industry-trained experts to help companies prepare and submit R&D claims in line with HMRC’s latest requirements. Through short discussions with your IT specialists and software developers, we can quickly assess claim potential and eligibility, from new system development all the way through to complex bug fixes and product improvements.
Our IT specialists are skilled in rapidly identifying qualifying activities and expenditure, saving you precious time. This combination of tax and technical R&D specialists is fundamental to ensuring a fully optimised R&D claim, one that is made efficiently to derive the commercial benefit to your company.
For more information on R&D tax reliefs for your company, please contact David Blacher.