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Ten things you need to know about R&D tax relief in 2021

Lauralei Chapman-Ludgate - Marketing Executive
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Safe to say, the last two years have been quite eventful for UK businesses. So much has changed and been altered by the pandemic – including R&D tax credits.

With all that’s been happening, now is the perfect time to take stock of where we are at with these powerful government incentives. And at ForrestBrown, we’re experts on all things R&D.

So, if you’re new to R&D tax relief this is the overview you need. Or if you’re already claiming, it’s time to check in on these big changes.

A list like this can only ever be a general guide and every business is different. If you’re facing any issue or have a burning R&D question, then get in touch.

R&D tax credits in 2021: Ten need to knows

1. The more things change, the more they stay the same

Despite big changes brought on by the pandemic and Brexit, one thing remains as true now as it was pre-2020: R&D tax relief is a powerful, accessible, and stable government incentive, providing an additional source of funding for UK businesses of all sectors and sizes.

At its essence, the incentive is designed to encourage and reward innovation. That’s because innovation is great news for the UK economy. And it’s also good for businesses: we know that companies actively investing in R&D have three times higher average turnover than non-R&D businesses.

Time and again, we see that innovation leads to yet more innovation. Other businesses in the same region as an R&D business benefit from knowledge diffusion. It’s a win-win: Your business can benefit, all while helping the UK be greener, more dynamic, and prosperous.

So, if you’re innovating, you need to be claiming. You can receive a cash credit (money in the bank) or a Corporation Tax reduction, based on what you’ve spent on resolving technological uncertainties.

Basically, it puts cash back into your business to solve headaches but also propels you into a profitable and innovative future where anything is possible.

FIND OUT MORE:  What are R&D tax credits and their benefits

2. The incentive is here to stay

Not only is the incentive stable and reliable, but you can also confidently factor it into your long-term planning. In its newly published innovation strategy, the government clearly outlined its commitment to “raise investment on R&D to 2.4% of gross domestic product (GDP) by 2027”.

R&D tax incentives are an intrinsic part of achieving those aims. The target is extremely ambitious, and research and innovation budgets are under a lot of pressure. Simply put, the government wants UK businesses to claim.

So, if you have yet to take the leap (or if you do and your benefit is meagre or offers only short-term impact), then it’s the perfect time to take a closer look. R&D tax relief offers enduring, strategic benefits to your business and the UK economy.

3. HMRC has changed its approach

HMRC has recently undergone a seismic shift in its approach to R&D tax credits. Long gone are the days of your friendly local R&D inspector popping out to your factory for a look around. No more hands-on help with your claim and even spotting some areas you missed.

Today, the incentive is simply too popular and too big for this. If HMRC does need to speak to you about your claim, you’re more likely to receive a formal looking schedule of questions and requests for information. And if you want to speak to them, set aside some time to navigate the call centre waiting list.

It’s not doom and gloom though. Proactive changes are afoot to move the incentive in the right direction, protect it from abuse and make it even better for legitimate businesses like yours. The recent R&D consultation is all about furthering the debate and progressing the incentive.

ForrestBrown is at the forefront of this, helping guide the conversation and shape the policy. If your R&D adviser isn’t having these conversations with you, it might be time to make the move to one that is.  

FIND OUT MORE:  A new era for R&D tax credits

4. More inspectors, more enquiries

Speaking of HMRC, their approach to R&D tax credits has been changing and generally getting tighter. With more HMRC compliance officers on hand, we can expect more enquiries into R&D claims to be raised.

You need to be confident your R&D claim is spot on, and you have the support to satisfy HMRC should they ask you questions. If you’re claiming or plan to claim R&D tax relief, it’s more important than ever to get it right.

Already claiming? You need to really understand what you’re claiming for and why. Either way, it’s a great opportunity to work with a trusted adviser, engage fully with this powerful incentive, and embed it further into your business.  

FIND OUT MORE: The increase in R&D tax relief fraud >

5. Sector specialists make the difference

In this new era of R&D tax credits, the onus is on you to carefully identify your projects and explain to HMRC why they meet the criteria for relief.

If you work with an R&D adviser, one with relevant sector specialists can really help with this. This sector insight and the ability to translate your projects for HMRC will give your claims a cutting edge. This is particularly evident in software R&D projects.

HMRC utilise their own software sector specialists so it’s essential you have someone that knows the detail of what projects you’re claiming and why. Sector specialists speak your language, understand the advances you’re seeking, and can clearly define R&D project boundaries while ensuring all relevant costs are captured.

FIND OUT MORE: Meet our sector specialists

6. Avoiding the bad eggs

You now have a way of spotting reputable advisers. In 2020, PCRT (Professional Conduct in Relation to Taxation) guidance was updated to include specific guidance on R&D tax advisers.

The PCRT is a code of conduct that members of the main tax and accountancy professional bodies are all accountable to. It promotes professional competence and integrity, requires members to keep up to date on new tax rules, hold professional indemnity insurance and be registered for AML supervision.

All tax advisers who provide R&D tax relief services to clients should be a member of a relevant tax or accountancy professional body, to protect you as their client. Make sure yours is and you can be a lot happier about what and how they are delivering their service.

On top of the PCRT, ForrestBrown’s professional body, the Chartered Institute of Taxation (CIOT) also published guidance on how to choose a reputable R&D tax adviser – we should know, we helped write it.

FIND OUT MORE: PCRT guidance and R&D tax relief

7. Don’t believe the hype

The internet is rife with spurious marketing claims from R&D firms. There’s so much out there, it’s easy to lose perspective. As a rule, don’t believe any iffy stats like ‘100% success rate’ or bogus talk of ‘approved claims’, and ‘HMRC-approved methodology’.

These are deliberately misleading and could spell trouble for your business further down the line. Be vigilant and don’t believe the hype.

FIND OUT MORE: Check out our R&D marketing myth-buster for some help spotting the common offenders.

8. What are you waiting for?

We know that many businesses are dealing with a lot: a COVID-19 triggered recession, Brexit woes, and almost certainly your own set of unique challenges. But embracing R&D and innovation and getting rewarded for it will help weather the storm and kickstart your future growth.

ForrestBrown finds a few chronic issues inhibiting investment in R&D. One is of course funding – which is where an incentive like R&D tax relief can offer an obvious benefit. But there are also infrastructural issues like staff shortages and a rapidly changing economy.

R&D tax relief help future-proof your business for the 2020s and beyond. And the right R&D adviser will help to make this happen. It’s essential to do your research to find one equipped to navigate a changing R&D tax credit market.

FIND OUT MORE:  Making an R&D tax credit claim with ForrestBrown

9. The devil is in the detail

When it comes to R&D tax credit contract terms, always read the small print. Now that the R&D tax relief market has matured, we have a really good idea of what you can reasonably expect from an R&D tax advice service agreement.

Watch out for nasties around enquiry support costing extra and lock-in clauses. And when it comes to fees, do your homework. Although appealing on its face, a contingent fee model won’t always be the most appropriate for your business.

FIND OUT MORE: Five things to look for in your R&D tax credit service agreement

10. Flexibility is the key to stability

In 2021, you need an R&D tax credits service that can flex to your needs. Gone are the days of a one size fits all approach to claim support. Today you can access targeted consultancy that suits your requirements.

Whether that’s enquiry support, sector specialists, or advisers that can offer consultancy services on the most complex areas of R&D tax legislation, interaction with other taxes and advice on transactions.

You want someone that can grow and adapt their support as you do and be at the forefront of changes in the industry. The R&D tax advice market is much more sophisticated now, so find an adviser that can rise to match it.

Claiming R&D tax relief in 2021:

In summary, a lot has changed in 2021 in the world of R&D tax credits. This list is just a taste of the R&D landscape and some food for thought.

There’s a lot more nuance around these points and that’s where ForrestBrown come in. We’re at the forefront of these changes, leading the debate, helping shape and fight for the R&D tax incentives of the future.

Get in touch

Thinking of making your first R&D tax relief claim – or perhaps have a question about your current approach to claiming? ForrestBrown’s expert team of tax advisers and sector specialists are here to help.