Most companies are now aware that Research and Development (R&D) tax credits are a government sponsored programme designed to reward UK companies for investing in innovation. The programme is designed to be a valuable source because meeting R&D Tax Credits Eligibility Criteria enables them to accelerate their R&D, hiring new staff and ultimately growth.
Having said that, many clients of RDP were under the impression that innovation was a criterion to claim R&D tax credits. Why? Because they simply received erroneous advice from their previous R&D provider. Innovation is NOT a criterion for claiming R&D tax credits.
There are numerous R&D tax credit service providers in the marketplace where several are unaware of the criteria and depend on a company’s feedback as to what is eligible. In our 30 years of experience working with companies both domestic and abroad, many businesses struggle with assessing eligible R&D projects and costs, and certainly more so if they are given a set of R&D tax credit eligibility criteria that is false.
“Experts” Issuing Misconceptions about the Programme
If an R&D service provider has made mention of one or more of the following, you are being advised incorrectly and more likely than not, it is in your best interest to look for new representation:
Myth #1: The R&D work has to be innovative and ground-breaking
Innovation and ground-breaking technology are not the criteria to assess work as eligible for R&D tax credits. R&D Tax Credits Eligibility Criteria include having a technological advancement and uncertainty by systematic investigation. These criteria are quite different than innovation or ground-breaking. In a nutshell, an R&D project needs to include some significant technical barrier to overcome and the work must be carried out in a systematic way.
Myth #2: A competitor has already developed the technology, so no further R&D claims can be made by others
If the intellectual property (IP) related to a technology is not available in the public domain and your company must develop that technology—even though a competitor has already done so—an R&D tax credit claim can still be made. A competitor more likely than not will keep their technology development proprietary, and not available to the public. As a result, your company would then have to embark on an R&D project to develop technology that is similar or identical in nature. In most cases, the methodology and undertaking of the technology developed will be different from that of their competitor.
Myth #3: Receiving a government grant prevents a business from an R&D tax credit claim.
If a company receives a grant for a project, an SME can still claim the research and development experimental credit (RDEC). While the RDEC scheme is less generous than claiming under the SME scheme, an SME can claim both SME and RDEC on a project by project basis. For example, if a company has 3 R&D projects where grant funding has been received for only 1 project, an SME can claim 2 projects under the SME Scheme and the grant funding project under RDEC.
Myth #4: It is not worth making an R&D tax credit claim if my business is in a tax loss position.
If a company is in a tax loss position, it may be eligible for a payable R&D tax credit. The only time this would be accurate is when a company has no or limited PAYE to receive the payable credit whereby HMRC has brought back a cap rule. This cap comes into effect for all accounting periods that commence on or after 1 April 2020.
As an international company, RDP Associates knows that R&D tax credits eligibility criteria are ultimately paramount in submitting any claim. If a given provider is unaware of the criteria or asks a company to determine eligibility, a company is likely leaving several thousands if not hundreds of thousands of cash on the table.
Consider Other Factors Outside of Eligibility and Maximising R&D Expenditures in Hiring a New Provider
- How much of your time will be required?
- The primary differences as to how your new provider will work with you and how they differentiate themselves from other providers;
- The provider’s experience when it comes to claim submissions and industry sectors;
- The provider’s overall R&D tax credit process; and
- Relationship and enquiry success rate with HMRC.
Given RDP’s experience and exposure to businesses worldwide, we have noticed a pattern of history repeating itself in the UK as HMRC has changed its policy on submitting R&D claims and the type of professionals they work with to ensure R&D tax credits eligibility criteria are met. As a result, RDP has seen this before in other countries where we service clients. From that experience, our clients in the UK are prepared for the future of the programme, which we brand as the Innovation Connection Programme (ICP).
Contact us, if you seek strategic advice on your claim preparations.