Gerald Edelman was approached by a construction engineering company for a Research and Development (R&D) tax credit in December 2021.
The company specialised in developing, manufacturing and operating specialist technology for modular constructions - such as bridges, power stations, buildings and manufacturing plants. The company also offer construction engineering and site services to help their clients integrate and install on-site equipment.
Due to the nature of this work, where health and safety precautions are vital to minimise the risk of death and injury, vigorous testing is paramount on every project. A company of this nature thus devotes significant resources to research and development, to allow their business to remain competitive in their industry and to increase the efficiency of their products.
After an examination of all the projects carried out by this client, we identified which of their projects sought to achieve an advance in science or technology through the resolution of scientific or technological uncertainty. Such projects were thus identified as meeting the criteria for an R&D tax credit within the accounting periods that ended in 31 December 2019 and 2020.
Please note, the time limit for an R&D tax credit claim is two years from the end of your accounting period. Before this period ends you must submit an R&D tax credit claim for any qualifying expenditure that you’ve identified during that period.
Accounting periods are usually twelve months long. If, for example, you file accounts on 31 March each year, you have until 31 March 2022 to make a claim for your accounting period that ended 31 March 2020. Once you hit the R&D claim deadline at midnight on 31 March 2022, you can no longer recoup the money you spent on qualifying activities between 1 April 2019 and 31 March 2020.
In our client’s case, they had qualified activities for an accounting period ending December 2019, which means their 2019 claim needed to be submitted by midnight of 31 December 2021. When the client approached us, it was less than one month until the deadline to make this claim for 2019.
Our R&D tax specialist took this project despite the tight deadline of submission and managed to submit the claim on time, which was approved by HMRC. Our client received £209k in tax credit as a result.
Testimony from our client
“We are truly impressed by Gerald Edelman’s R&D tax specialist team - especially with Amal and Lynn’s partner lead approach on our case, and how efficiently and effectively they worked to get this turn around. The whole process from being engaged with GE to receiving the HMRC repayment only took a couple of months! We strongly recommend Gerald Edelman to anyone who requires R&D tax work.”
How does R&D tax credit work?
In a recent article by Simone Lyons, we discussed what R&D is and how it works as a tax credit. Research and development tax credits are a government incentive designed to reward UK companies for investing in innovation.
There is great scope for the identification of R&D, as it is prevalent in almost every sector. If it is your first claim, you can typically claim R&D tax credit for your last two completed accounting periods.
In order to qualify for R&D tax credits, you must:
- Be a limited company in the UK that is subject to Corporation Tax- not necessarily paying Corporation Tax, the company can be loss-making.
- Have carried out qualifying research and development activities.
- Have spent money on these projects.
There are two distinct R&D incentives, divided into benefits for SME companies, and large companies.
To qualify as an SME you must have:
- Fewer than 500 staff members.
- Either no more than £100 million turnover or £86 million gross assets.
SME companies can:
- Obtain an R&D tax credit for 230% of R&D expenditure.
- If not in profit, can claim a cash payment of 14.5% of the R&D credit.
Please note, there are new limits for accounting periods starting after 1 April 2021.
There are a few factors such as grants and subcontracting that can restrict an SME from accessing this SME incentive. This means you may need to make a claim via RDEC – or via both incentives.
A large company is qualified as having 500 staff or more and either more than £100 million turnover or £86 million gross assets. Large companies instead have to claim the Research and Development Expenditure Credit (RDEC). This gives a credit to the value of 13% of qualifying R&D expenditure, but if paid as credit, is paid net of tax (currently 19%).
What to include in your R&D claim
In order to be classed as Research and Development by HMRC, a company's project would be expected to have uncertainties and failures, and the relevant costs of this should be included in the claim.
Once a prototype or project is finalised, any production costs would not be eligible for R&D tax credit. A company can make multiple claims, as long as all projects meet the requirements.
Costs that can be included in the claim:
- Staff costs, including salaries, employer’s NIC, pension contributions, and reimbursed expenses.
- Materials and consumables including heat, light, and power that are used up or transformed by the R&D process.
- Some software.
- Payments to the subjects of clinical trials.
- Subcontractors and freelancers - however, these expenses are restricted to 65% of the eligible amount.
R&D also covers the creation of processes. Innovation of ideas or products that did not previously exist can be considered. This is more likely if the research/development was undertaken in-house by staff included on your own company payroll.
We have assisted numerous industries/sectors in relation to R&D tax. Your company may therefore benefit from speaking to a member of our team to see whether a claim could be made. Contact our tax team today.Back to top