When asked by ForrestBrown, less than a third of business leaders thought internal projects could qualify for research and development (R&D) tax credits. This misconception could be costing innovative companies a fortune.
Not only do internal projects qualify for R&D tax credits, but they’re also often valuable and resource-intensive projects.
At Rufus Leonard, one of the UK’s leading brand experience agencies, they typically invest over 10% of all available development resources into their own R&D programme. Often, it’s internally where their most technically demanding work takes place.
For example, the company once developed bespoke software to automate and speed up its quality assurance (QA) process. Another time it developed a new user interface (UI) framework, allowing them to deliver responsive websites at a far quicker pace.
Rufus Leonard also created a reusable software framework that could be applied to multiple future projects, increasing the efficiency of backend development beyond standard agile processes and out-of-the-box builds.
Find out more about Qualifying Costs in Software Development in our post on the topic.
Claiming R&D tax credits for internal projects
Moreover, Rufus Leonard’s internal R&D set the scene for its external client-facing projects. With these new capabilities, it helped a nationwide transport company improve its online customer experience.
The task for Rufus Leonard was enormous, including mobile ticketing, real-time information, personalisation, geolocation, time-tabling and much more.
While numerous off-the-shelf or previously developed components fed into the solution, the company needed to integrate these systems with 50 different APIs. And where there were limitations in the existing technology, they had to develop bespoke solutions.
Into the past: Finding hidden R&D in past projects
A lot of this activity qualified and went towards the R&D tax credit. But this was just one project. ForrestBrown carefully assessed all of Rufus Leonard’s past projects, too. This retroactive assessment can go back two tax years, so it may not be too late to claim for eligible projects already past.
“Our field had advanced so much in just the previous two years that looking back we felt there was no way the work we delivered broke new ground,” says Iain Millar, head of innovations at Rufus Leonard. “But just because something we considered innovative two years ago is not considered an advance today, doesn’t mean the project does not qualify as research and development.”
Iain adds, “R&D tax credits have had a big impact on our business. The incentive was still a new concept to us and we weren’t sure of the value of the benefit we might receive.”
The R&D tax credit helped fund some refurbishment of our premises which may have been more costly to finance by other means.Iain Millar, head of innovations at Rufus Leonard
Innovation begins close to home. Firms that develop their internal R&D activities are more likely to generate more innovative products. Of course, this internal investment comes at a monetary cost just like any client-facing ones. R&D tax credits effectively lessen this upfront investment.
Again and again, the biggest education gap we come across when speaking to businesses is about where R&D begins and ends. Too often, the definition that people work from is far too narrow.
R&D doesn’t begin and end anywhere. Instead, it helps to think of it as a virtuous circle of innovation. Your internal and external R&D sustain and amplify each other. R&D tax credits free up the cash needed to invest and reinvest in this cycle.
There’s so much to R&D. Internal projects, client-facing projects, failed projects, subcontracted work – there are levels to all of it. A big reason why ForrestBrown takes so much care to comprehensively assess our clients’ potential R&D is because of this tendency to underestimate and misinterpret.
Understandably, businesses err on the side of caution when it comes to claiming. No one wants to draw HMRC’s ire. But don’t let this stop you and make you lose out on thousands (potentially hundreds of thousands!) of pounds.
There’s nothing to lose by asking us to take a closer look at your projects. Our team of tax experts, sector specialists and former HMRC inspectors will get you the tax credit you deserve.
If you’re a software or design firm and want to find out more about working with ForrestBrown and the value we bring, contact us today.