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Reasons why your company may not be claiming R&D – but should be

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Author: Tom Mason

We come across many instances – particularly with small to medium-sized businesses – in which there are misconceptions about what sorts of activities qualify for R&D tax relief.

Research and development can lead people to believe that there needs to be people in white lab coats working on elaborate scientific projects, but this isn’t the case.

Many companies can be running what they see as normal day-to-day activities, and don’t realise that what they’re working on is eligible to be subsidised by the Government.

Reasons why people don’t claim R&D tax relief:

  1. You don’t think your company is big enough to qualify – R&D tax relief is available to businesses of any size. For smaller small and medium enterprises, there is a specific R&D tax scheme available. Companies will qualify for the SME scheme if:
    1. Are a limited company based in the UK
    2. Employ less than 500 people
    3. Have a turnover of less than £85 million a year
    4. Have been trading for at least a year
  2. You don’t think the work you do qualifies for R&D tax relief – As mentioned previously, R&D tax relief isn’t just for ‘white lab coat’ projects, the scope is much wider. It is defined as a project that sees advancement in a field of science or technology by the Government. You could be developing software, or creating innovative materials – even projects that fall under the scope of pure maths can qualify. In April 2023, the Government stipulated that projects can qualify for R&D tax relief, regardless of whether they pertain to understanding the physical and material universe, such as developments around AI technology.
  3. Your R&D spend is quite low so you don’t think it’s worth it – This shouldn’t mean you don’t consider applying for R&D tax relief. R&D relief can cover more than just spending on the project itself, it can also include staffing costs, utility costs, and software costs. Making sure you understand what can be covered by R&D is key when making a claim
  4. Your company is making a loss and you are not paying corporation tax – Many small companies think they’re ineligible if they’re not profitable and aren’t keen on future ‘relief’. However, you can receive this relief as a cash payment now, whether you’re making a profit or experiencing a loss. So, even if you’ve never paid corporation tax or have yet to make a profit, you can still obtain cash payments.
  5. Your accountant has not advised you to apply for R&D relief – R&D is quite specialised, and not all accountants are familiar with the details of the scheme, and may not be able to identify innovation just by looking at your accounts.

Why it is important to seek advice from an accountant who specialises in R&D claims

Particularly on point number five of this article, R&D tax relief isn’t an area of tax that all accountants are familiar with. We come across many cases of companies that didn’t think they qualified for relief as they weren’t aware of the schemes available, particularly in cases of SMEs.

Get in touch with one of our specialist advisors if you are unsure whether you qualify for R&D tax relief, or need support in making a claim.