That’s often true. And most science and technology businesses are more than aware that the work they’re doing qualifies as R&D, making them eligible for the government’s R&D tax credit incentive. Some may even be confident to handle their claims in-house.
So far, so good. But this strategy could be costing them dearly. There are many less obvious areas that can contribute to, or affect an R&D tax credit claim. Areas which call for a deep understanding of the R&D tax legislation – an understanding that only an R&D tax credit specialist will have.
Here are some of the commonly misunderstood areas that could be costing science park tenants opportunities for growth.
Grants from the Government and European Commission
If you’ve already received a grant, this may affect your claim. For SMEs, the R&D tax credit scheme is so generous that it counts as notified State Aid, with the government having to seek approval from the European Commission. By contrast, the R&D tax credit incentive under the Large Company Scheme, known as RDEC, does not count in this way. For more information read our article on grant funding and R&D 2017.
Notified and de minimis State Aid
Most grant funding is classified by the EU as notified State Aid – and there’s a limit to the amount of funding that can be received for any one project. R&D tax credits under the SME scheme count towards this funding, so once a penny of notified State Aid is received, it will have implications for any future R&D tax credit claim. Potentially it will rule you out of using the SME scheme, and push your claim into the less generous RDEC.
If you receive de minimis State Aid as a grant towards a project, it’s good news. You can still claim for R&D tax credits under the SME scheme, but you will need to take the grant into account when calculating the expenditure amount as part of your R&D tax credit claim.
Meanwhile, grants from the European Commission made under the Horizon 2020 initiatives, should not affect your R&D project’s overall tax eligibility, as these are handled differently to state aid, although expenditure subsidised by the grant can only be claimed under RDEC.
Common mistakes with grants
We often meet businesses who seek government grants before checking if this is the best option to boost their financial position. It may not be the right choice.
Likewise, some companies mistakenly believe that because they’ve received a grant, they won’t be eligible to make an R&D tax credit claim at all. This is in our experience not often the case.
If you work with a specialist tax credit adviser, they’ll be equipped to help you navigate these complications. One thing is for sure, the best time to check how to optimise a project for both grants and R&D tax credits, is before any grant money is received.
Identifying qualifying expenditure
When putting together a tax credit claim, there are many types of costs that can be thrown into the mix. You’re able to claim for staff expenditure including salaries, employer’s NICs and pension contributions, a percentage of your subcontractor and freelance costs, as well as the cost of materials and consumables including heat, light and power that are used up or transformed by the R&D process. You can also claim for some types of software.
What surprises many science and technology businesses is that claims can be made for projects carried out on behalf of a client as well as their own internal projects. And it’s not only successful projects that count; those that are unsuccessful can potentially qualify too.
If you’re a science and technology park tenant, it’s less likely that you’ll be spending a vast amount on capital expenditure – but it’s still an area worth thinking about as it’s possible to claim an R&D allowance (RDA) of 100%.
Claiming for prototypes
Prototypes constructed for an R&D project and then sold after the project is complete, are often able to be included in a tax credit claim. In addition to this, companies running a manufacturing trial may be able to claim some or all of their expenditure on developing the manufacturing process. Projects of this type are commonly seen as R&D but they may be overlooked in a claim as normal production projects are viewed as an indirect activity and so do not qualify.
Working out what expenditure can form part of your claim is a complicated business – and this confusion can result in companies submitting claims that fall short of where they could be.
Get specialist advice
At ForrestBrown, we’re specialists in R&D tax credits – it’s the only thing we do. That’s why we’re in a great position to help you put together your R&D tax credit claim and more importantly, maximise the benefit you receive.
If you’d like to talk to us about making a claim or to discover if you’ve under-claimed in previous years, call us on 0117 926 9022.