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R&D Tax Credits: The Facts

Nat Mortazavi
Research and Development Tax Credits

By this point, most of us will have heard of Research and Development Tax Credits, either through submitting an application or on the grapevine.  However, most companies are not fully taking advantage of this incredibly powerful funding mechanism.

Let’s start with the easy part.  The R&D Tax Credit incentive was introduced by HMRC in 2000 to encourage scientific and technological innovation within the UK.  There are two different schemes; the large company scheme (called RDEC) for companies with a turnover above €100mil, balance sheet value over €86 mil and more than 500 employees, as well as an SME scheme for companies under those thresholds.

Which scheme your company would fall within is therefore clear cut. However, the question of what projects qualify under the scheme is less straightforward.

HMRC’s definition of R&D is partially to blame; in an effort to clarify what is eligible under the scheme, HMRC issued four key qualifying points:

  • The project must seek a sector-wide advancement in science and technology.
  • The solution must not be readily deducible to a competent professional.
  •  There must be technical uncertainty associated with the project.
  • The company must bear financial risk by undertaking the project.

Whilst that may initially appear like a restrictive definition, the reality is quite the opposite; indeed, many companies are carrying out what would qualify as ‘R&D’ in the eyes of HMRC without them even knowing it. Furthermore, those who are recovering costs through their accountants are typically getting back a fraction of what they’re entitled to.

The scheme is seen by many companies as something that ‘the accountant’ can deal with.  To approach R&D tax credits from a purely accountancy stance is a fundamental error and leads to the scheme being poorly applied and the cash recovery being a fraction of what should have been recovered. 

This is not a slight against accountants! To understand what activities of a business are eligible for recovery requires a fresh and holistic approach.  It is best achieved by an independent specialist, who starts with no preconceptions or historical understanding of what a company does.

Failing to understand the breadth of activities that qualify, or not presenting those activities in a way which HMRC can understand (both in terms of the actual tech involved and eligibility within the scheme) has caused many businesses to miss an enormous number of recoverable costs, or shy away completely.

The obvious costs are usually easy to isolate by most – NPD, product iterations and modifications are typically recovered (though the indirect costs for these are regularly overlooked). However, the less obvious costs, like software integrations and process enhancements, are often not considered. When combined with indirect qualifying costs, the figure can grow to be quite a substantial one indeed. To recover these areas, in-depth knowledge of the technology involved and a thorough understanding of the R&D mechanism is required.  This is why R&D tax credits are not an accountancy exercise – it requires a specialist.

Consequently, specialist consultancies, like Breakthrough Associates, have been founded with the sole purpose of remedying this problem. We are R&D Tax Credit experts; it is all we do and our job is to find the R&D within your business and prove to HMRC why it qualifies.

We differentiate ourselves by taking a holistic view of our client’s business, taking the time to have a face-to-face visit without relying upon telephone interviews which, sadly, is an industry norm.  This enables us to isolate and recover significantly more qualifying costs than an accountant would be able to, sometimes by a multiple and not a small percentage.

We are so confident in our offering that we review historical applications for free.  If there are additional areas to isolate, we only charge our contingent fee on the uplift. We take the risk and will potentially deliver you a substantial additional return (to date we have been successful in improving prior submissions in 98% of cases).

With a 100% success rate, you can be confident your business is in safe hands.

Our process and IP are well-recognised and respected across the industry and by HMRC.

Whether you are one of the 85% of SMEs eligible to recover R&D Tax Credits that has not yet done so, or a company that has claimed previously, Breakthrough Associates can help you.

There is no cost, save for a cup of coffee and 45 minutes of your time. For further information, please call Breakthrough Associates on 01676 487 930, or visit www.btaservices.co.uk.

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