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Coronavirus Advice  •  R&D Tax Credits  •  Tax Relief

Could you claim R&D tax credits for Covid-19 innovation?

By RJP LLP on 16 June 2020

As businesses enter Covid-19 recovery mode, many will have secured financial support such as a government bounce back loan for its attractive terms and immediate cash flow relief. Whilst these loans have proven to be invaluable, they are of course only loans and they need to be repaid. An alternative option, if it is available, is to find a way to access some type of business grant.

R&D tax credits are a good example of such a grant and this scheme, which is reaching its 10th anniversary this year, could become an even more important source of tax relief (and cash) than is already is.

This is because for every £1 spent on qualifying R&D activity, a successful claim can be worth additional tax relief of up to 24.7p as a reduction in corporation tax, or up to 16.9p as a cash lump sum. On average, SMEs achieve tax savings of approximately £53,714 per claim based on 2017/18 figures, which can of course run into hundreds of thousands over multiple years.

If your company has adapted its business model and invested in new ways of operating to survive Covid-19, this may qualify as innovation for R&D tax relief purposes and it is worth exploring whether this might be the case. For instance, many companies have recently invested in data solutions and cloud computing technology. Where this involves qualifying innovative development it may qualify for R&D tax credits – the government is due to be consulting soon on whether such investment costs will be allowed.

Other developments related to new business processes, different business models that create a competitive advantage or adopting innovative production techniques can also qualify. These projects may be as diverse as a local café switching to offer fresh food deliveries sold via e-commerce, or a luxury retailer launching a subscription gift service in order to survive the Coronavirus crisis.

4 things you might not have known about R&D tax credits

  1. If you are about to submit a claim for R&D tax credits, HMRC has deployed additional resources to minimise delays for new claims submitted. In some cases, it may even be possible to receive a cash lump sum back within 10 days. For loss-making companies or in cases where the R&D claim places a company into a loss-making position, the loss can be surrendered to HMRC for a cash repayment.
  2. Claims can be made retrospectively for any accounting period which ended within the last two years. For example, work done from as far back as 1 July 2017 and up until the accounting period ended on 30 June March 2020 can be considered for a tax relief claim. It may also be possible to shorten an accounting period in order to expedite a claim if significant expenditure has been incurred.
  3. Resource costs for qualifying projects can be claimed – for instance, expenditure on staff costs, including employers’ NICs and pension contributions can be claimed, alongside costs for consultants and contractors, although the proportion of these which can be claimed compared with the overall project costs is lower.
  4. Many small company directors have had to furlough themselves and the rules for the government scheme require that they do not engage in any revenue generating activities. However, they are permitted to undertake statutory duties as required by legislation, such as filing tax returns and company accounts. A claim for R&D tax credits will not breach the rules of the furlough scheme and can be made even if a company has temporarily stopped trading.

Got a few minutes to spare?

Check whether your company could qualify for R&D tax credits with our quick quiz.

https://www.rjp.co.uk/rd-tax-relief-quiz/

 

For support when making an R&D tax credits claim, contact us via partners@rjp.co.uk.

 

 

 

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As businesses enter Covid-19 recovery mode, many will have secured financial support such as a government bounce back loan for its attractive terms and immediate cash flow relief. Whilst these loans have proven to be invaluable, they are of course only loans and they need to be repaid. An alternative option, if it is available, is to find a way to access some type of business grant.

R&D tax credits are a good example of such a grant and this scheme, which is reaching its 10th anniversary this year, could become an even more important source of tax relief (and cash) than is already is.

This is because for every £1 spent on qualifying R&D activity, a successful claim can be worth additional tax relief of up to 24.7p as a reduction in corporation tax, or up to 16.9p as a cash lump sum. On average, SMEs achieve tax savings of approximately £53,714 per claim based on 2017/18 figures, which can of course run into hundreds of thousands over multiple years.

If your company has adapted its business model and invested in new ways of operating to survive Covid-19, this may qualify as innovation for R&D tax relief purposes and it is worth exploring whether this might be the case. For instance, many companies have recently invested in data solutions and cloud computing technology. Where this involves qualifying innovative development it may qualify for R&D tax credits – the government is due to be consulting soon on whether such investment costs will be allowed.

Other developments related to new business processes, different business models that create a competitive advantage or adopting innovative production techniques can also qualify. These projects may be as diverse as a local café switching to offer fresh food deliveries sold via e-commerce, or a luxury retailer launching a subscription gift service in order to survive the Coronavirus crisis.

4 things you might not have known about R&D tax credits

  1. If you are about to submit a claim for R&D tax credits, HMRC has deployed additional resources to minimise delays for new claims submitted. In some cases, it may even be possible to receive a cash lump sum back within 10 days. For loss-making companies or in cases where the R&D claim places a company into a loss-making position, the loss can be surrendered to HMRC for a cash repayment.
  2. Claims can be made retrospectively for any accounting period which ended within the last two years. For example, work done from as far back as 1 July 2017 and up until the accounting period ended on 30 June March 2020 can be considered for a tax relief claim. It may also be possible to shorten an accounting period in order to expedite a claim if significant expenditure has been incurred.
  3. Resource costs for qualifying projects can be claimed – for instance, expenditure on staff costs, including employers’ NICs and pension contributions can be claimed, alongside costs for consultants and contractors, although the proportion of these which can be claimed compared with the overall project costs is lower.
  4. Many small company directors have had to furlough themselves and the rules for the government scheme require that they do not engage in any revenue generating activities. However, they are permitted to undertake statutory duties as required by legislation, such as filing tax returns and company accounts. A claim for R&D tax credits will not breach the rules of the furlough scheme and can be made even if a company has temporarily stopped trading.

Got a few minutes to spare?

Check whether your company could qualify for R&D tax credits with our quick quiz.

https://www.rjp.co.uk/rd-tax-relief-quiz/

 

For support when making an R&D tax credits claim, contact us via partners@rjp.co.uk.