Tax is always an emotional subject for any business…
And being the ‘Money Saving Experts‘ for the office and workplace, we thought we’d take a look at a specific area of business, where you could make a good saving. Research & Development.
In it’s simplest term, if you carry out research and development in your business, you could be entitled to money back from the government in the form of tax credits.
Research & development tax credits are a tax break provided by the UK Government. Their aim is to encourage business to spend more on UK research & development.
Small & medium sized business (profitable or not) can claim back up to 33% of the amount they spend on qualifying research & development. Although larger organisations can only get up to 10%.
The money is paid as a corporation tax rebate (or as negative corporation tax) after the end of your financial year. Another bonus, is that it’s tax free and can be used for anything.
To qualify, the research & development must meet the governments rather detailed criteria…
A project qualifies if it constitutes an advance in science and technology, and that’s defined as an improvement in overall knowledge and capability in a technical field.
As an example. Setting up WordPress or a Magento website wouldn’t qualify, as the platform has already been developed and you are just building on top of them. But, on the other hand, if each website you develop is unique and uses it’s own coding (open source) this could well qualify.
Another good example is restaurants. Copying someone else’s dishes (maybe with a slight twist) doesn’t count. But developing a complete new dish or menu from scratch, probably will. This will include things like trips to research what other restaurants are doing, sourcing of ingredients, time spent testing tasting and documenting the processes involved in creating the dish and menu.
I have a friend who has a few restaurants in Greater Manchester and Cheshire. And a couple of times a year he travels to China to research new dishes and source ingredients. It’s things like this that can be included in your claim. It’s not just the time spent in the kitchen, it’s also the money and time spent travelling to do the initial research and sourcing.
And breweries (including micro breweries) can claim for a new beer they have developed, in the same way that a restaurant can claim for the development of a new dish.
Engineering companies are constantly involved in research & development, and they probably don’t even know it. One of their clients will ask them to make something that they have never made before. They have to first design and make jigs and other tools to help them make the required structure. And each of these jig’s and tools will be unique to each customer requirement, enabling them to claim tax credits.
Beware though, it’s not just about the technology. You also need to have spent money developing it, and in the right way. You’ll be pleased to hear the rules are much more clear cut than on the technology. You can get research & development tax credits if the following are true:
- You have a UK company
- That UK company must have actually spent money on their technology development
- That money was spent on:
- wages (staff on PAYE)
- external contractors (paid day rate)
- subcontractor (pre-agreed quoted price)
- software licences needed to deliver the project
- money was spent during your last two completed financial years (up to 36 months ago)
If you think you qualify, the easiest and quickest way is to speak to a specialist and let them do all the work, there’s plenty of them around and they will charge you a pre-agreed % of the money they get you back, usually between 20 & 40%, depending on the work involved.
Forward thinking accountants can also help (if you have a good one) and be a lot more cost effective than the specialists. But quite a lot of accountants don’t fully understand what can be claimed. So if you do go down this route, make sure your accountant knows there stuff when it comes research & development tax credit claims.
However, if you have the time, you can certainly do it yourself. The key thing, is that you fill the right boxes in (on your CT600) and file it along with an explanation of why your projects qualify. Together with a calculation table that details why you claimed the amount.
The essential point of filing, is to convince the government you understand their definition what activities and costs qualify, and have applied it correctly. If you got it right, they should pay you out within 2 – 8 weeks.
Be warned, if you got it wrong, you can end up with a government enquiry, and you don’t want that. At best it can involve a few questions and at worst, it can be a gruelling meeting and penalties for misfiling.