When you shouldn’t Claim for R&D Tax Credits
Research and development claims are a vital way to offset some of the costs incurred through seeking to advance scientific and technological development. Many businesses are benefiting from this relief, either in the form of a cash payment or a reduction in their tax bill, but there are occasions when an R&D tax credit claim isn’t the best solution for your organisation. Here, we explore scenarios where such tax credits can’t – or shouldn’t – be claimed.
Your business is creative
HMRC has separate creative reliefs for businesses that produce video games, film, television and theatre. While you may also be engaged in research and development, some of these industry-specific benefits may prove more advantageous. It’s possible to claim both R&D tax credits and creative relief, but not on the same expenditure, so seek advice from a specialist tax advisor on the best way to proceed.
You have grant funding
Those grants categorised as ‘notified state aid’ will typically invalidate any SME R&D tax credit claims on expenditure related to the funded project. Grant funding is applied for in advance to offset the costs of an innovation project. As such, it may rule out the chance to claim tax credits retrospectively. This can be advantageous if the value of the grant is more than what can be claimed through tax relief, and/or if cash is needed up front to begin the project.
You may still be able to claim under the Large company R&D regime, RDEC.
As with creative relief, speaking to a professional advisor before you start a project will help you determine whether a grant or an R&D claim is the right option.
Your organisation doesn’t have the right structure
The R&D relief scheme doesn’t apply to some organisations, namely charities, sole traders, partnerships and academic institutions. If your business is a UK limited company, however, you can make a claim on qualifying activity.
Complexities arise if you are part of a group structure as the costs for the project need to be located with the right entity in order for a claim to be valid. In addition, even if your business is small and the costs are associated with you, you may still have to apply under the RDEC scheme as opposed to the SME scheme because of the group structure.
Your project falls outside the claims period
Retrospective R&D claims can be made, but there is a time limit on them. If you undertook a project that would qualify for tax relief, but more than two accounting periods have passed, you can no longer make a claim.
You don’t pay salaries
Significant R&D tax credit claims require significant qualifying costs to be made in pursuit of scientific or technological development. That means that as well as material costs, salaries must be paid to make a claim worthwhile. If, for example, you own a start-up that is carrying out R&D and the only salaries being drawn are modest wages for the directors, there is no real gain to be made from tax credits.
Professional R&D claim advice
At R&D Tax Solutions in Manchester, we work with organisations in a number of industry sectors to ensure they are making the right choices when it comes to R&D claims. We can identify any eligible projects and advise on how best to seek reward for your activities, be it through R&D tax credits, a grant or creative relief. Contact us today on 0161 298 1010 to find out more.