Simon Littlejohns of Birmingham chartered accountants and business advisers Friend Partnership Ltd asks if SMEs are waiting too long to reap the rewards of R&D tax credits.
For any business undertaking qualifying R&D activity, tax credits can be a very welcome cash flow boost. In fact, the current R&D regime is hugely beneficial – the tax deduction uplift is currently 130% with a payable tax credit of 14.5% available from HMRC for any losses surrendered.
However, many SMEs are waiting too long to reap the financial rewards of R&D tax credits, not realising that they could be securing repayments from as early as 10 days from the submission of the claim.
Alarmingly, some tax professionals involved with such claims are happy to perpetuate the myth that R&D refunds involve reams of paperwork and that HMRC takes its time in processing them. Businesses are therefore needlessly waiting months for tax repayments to hit their bank account.
When it comes to quickly and efficiently securing R&D tax credits, it is important to remember that claims will only be successful if the business can demonstrate that what they are doing is innovative and creating an advance in science or technology – rather than simply an advancement in their knowledge.
It is now possible for companies who are undertaking R&D for the first time to get advance assurance from HMRC by completing a simple online form. Care will be needed in completing the form so that the best possible explanations are given for the R&D activity.
This is well worth doing. If HMRC give a positive assurance they will not look at R&D claims for this company for a period of three years. This facility will help speed up the acceptance of the company’s first claim and any subsequent tax repayments.
When it comes to the misconception that HMRC require long reports and huge amounts of supporting information, I would urge businesses to understand this is simply not the case.
A straightforward process
The process is relatively straightforward and is by no means onerous. Firstly, companies must ensure the detail in the tax computation gives a clear breakdown of the R&D expenditure. The detailed supporting narrative can be held in reserve to use if HMRC ask any questions rather than necessarily being provided with the claim.
Typically with R&D claims there are a series of questions which each and every company will have to address – questions which may well be asked by HMRC in support of the claim. In many cases claims are never questioned, but I would always ensure that the claim is valid and supporting information is available if required by HMRC.
The questions are:
- What is the scientific or technological advance being sought?
- What are the scientific or technological uncertainties involved in this process?
- How does the project plan to deal with these uncertainties?
- Why is the knowledge being sought not readily deducible by a competent professional?
Ultimately, for businesses with established R&D activities, which may or may not have been questioned by HMRC in the past, the turnaround time for R&D repayment claims can be very quick and can be secured without the need to provide HMRC with reams of information. Don’t be fooled into playing the waiting game.
Contact Simon Littlejohns on 0121 633 2000 or click here to email.
Since Friend Partnership Limited was established as a corporate finance boutique in 1983, it has grown into a well-respected Chartered Accountancy practice offering a full range of business advisory, accountancy and taxation advice and support services. It works principally with privately owned businesses operating nationally and internationally in a variety of sectors including manufacturing, technology, renewable energy, distribution, retail and construction, and range from entrepreneurial start-ups to well-established businesses.