Research your R&D relief

For some time there have been generous tax credits for SMEs who carry out research and development. The government have basked in the glow of an economy that has millions of pounds of research and development going on.

If a company invested £100,000 in R&D, the government would add 130% – £130,000 in tax relief for the company. The company could also claim a tax credit of 14.5% on the total amount of £230,000.

However, the activities of some get-rich quick operators has resulted in a modification of the level of generosity!

You could call it the PPI of tax! There are companies who encourage SMEs to claim the R&D relief. It was a relatively simple process, which anyone could complete. Better still HMRC weren’t doing much checking up on the claims.

The company would get a phone call telling them that they were entitled to R&D tax relief and offering to process their claim in return for 3-5% of the amount claimed. No stress for the company and, effectively money for no additional effort. Providing that the company has genuinely been carrying out R&D, the claim is genuine and there’s no problem. However, some of these agents encouraged their target SMEs to claim all kinds of things that don’t actually qualify as R&D.

Now there are more people trying to make a fast buck from encouraging those companies who were misguided by agents to claim for compensation.

The government realised that it was time to tighten things up. The R&D tax credit still exists, but, as of 1st April 2023, it’s dropped to 86% and only a company representative or their accredited agent can make a claim.

In addition, it’s no longer possible to claim a lump sum for ‘materials’ and another for ‘labour’. The details of expenditure now needs to be in detail, with evidence.

As of 1st August, all R&D claims must be made digitally, no more paper forms.

In addition the previous 14.5% tax credit, that would be repaid after you’d covered any other liabilities outstanding, has dropped to just 10%.

HMRC have a team of investigators who are paying more attention to R&D claims so, before you claim, do your homework and ensure you can tick all their boxes, legitimately.

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