R&D tax credits are can be very valuable for any business but one of the things we’ve noticed is that a lot of companies don’t bother to claim.
This seems odd because smaller companies can claim up to 230% of the value of their R&D work, so it is certainly worth doing.
In our opinion, there can only be one reason why directors don’t make use of R&D tax credits and that is because they believe one of the myths that are out there.
So in an attempt to put an end to some of these, we’ve compiled a list of the ones we hear most commonly and given you the facts.
So let’s dive in and check out the 11 most common myths about R&D tax credits:
1 – You don’t do any R&D work
A lot of the companies we speak to simply don’t believe they do any R&D work. They seem to think that R&D work is developing new types of robots or becoming a cutting-edge software house but nothing could be further from the truth. If your company is working on new ways of doing things, even if it is in a mature sector, you can still claim R&D tax credits.
2 – Loss-making companies can’t claim R&D tax relief
R&D tax credits are designed to help businesses that are working on new products and services. The government understands that many of these companies are startups and pre-revenue. So even if you are making a heavy loss, you can still claim a tax credit. If you use our innovative R&D tax credit funding you can also raise cash against the value of your tax credits too.
3 – Grant funding disqualifies companies from R&D tax relief
This can be partially true and it is all down to what type of grant funding you have received. Companies are only allowed one form of state aid for a particular project, so if you receive grant funding that is designated as state aid then you won’t be able to claim R&D tax credits for smaller companies (called Small or medium-sized enterprise (SME) R&D tax relief).
However, you can still claim the larger company scheme called the R&D expenditure credit (RDEC) which, although it is less generous, is still a worthwhile credit to have. Of course, if you have received grant funding that isn’t designated as state aid then you are free to claim under the smaller company scheme.
4 – You do R&D work on behalf of other organisations
You may do work on behalf of other organisations but if they don’t reimburse you for the costs of carrying out R&D to enable the work to be done then you can still claim. As long as you carry out the work at your own risk and there is significant uncertainty about the outcome then you are in a good place.
5 – Taking time out to run an R&D claim wouldn’t be cost-effective
It may seem that in a busy company, there simply isn’t any point in claiming your R&D tax credits but you couldn’t be more wrong. If you claim under the small companies regime then you could receive up to 230% of your qualifying expenditure meaning that the government is paying you to improve your business. Now that’s got to be worth it!
6 – R&D tax relief is only for the big boys
The truth is completely the reverse of this statement. In fact, R&D tax credits are more generous for smaller companies and are specifically designed to encourage young, agile and innovative businesses.
Yes, the big boys might have entire departments set up to claim their tax credits but you will receive more money as a percentage of your claim if you use the small companies scheme.
7 – It takes forever to get your cash
This one can be partially true. If you are claiming a tax credit then you have to wait until your annual tax return goes in to see any benefit. However, if you use our innovative R&D tax credit funding we can get you cash super-quick!
8 – R&D tax credits are only for specific industries
Again this is completely wrong. Any company that carries out work with a significant amount of uncertainty and that makes advances in their field is eligible to receive a tax credit.
9 – R&D tax credits are only for products
Although the vast majority of claims are for companies that are producing tangible products, in fact, R&D tax credits can be claimed against services and intangible research work. In his 2022 Spring statement, the chancellor also announced that the regime will be extended to cover things like pure maths research too.
10 – R&D tax credits are only for products that make a profit
You can claim R&D tax credits whether your research is successful or not and whether the products or services are profitable or not. This goes too for the whole company or group. It doesn’t matter whether you are profitable or not and if you aren’t making a profit and don’t pay corporation tax you can even claim your tax credits back in cash.
11 – You can only claim for successful projects
The aim is to stimulate growth in research and the government understands that sometimes you may need to kiss a few frogs before you find your prince. Unsuccessful projects, as long as they meet the criteria for R&D tax credits, can still be eligible.
R&D tax credits – what are you waiting for?
Claiming R&D tax credits can be a very simple process.
We’d always suggest getting a specialist involved to help you with your claims as they can often make sure you are getting as much as possible but you can do the process yourself if you want.
And once you have a claim then you can use our specialist R&D tax credit finance to give you cash well in advance of your corporation tax return.
Give us a call now and let us talk you through it.