R&D rebates explained...
SME’s can claim anywhere between 20-33% on R&D tax credits depending on what position they’re in when it comes to profit & loss. A good example and one to easily get your head around is; let’s take an SME with qualifying R&D costs of £100,000, the return on this will be somewhere between £20k-£33k depending on whether they’re profit or loss making. Money Sphere will of course always aim to get the absolute maximum possible return for you. We would also advise on the best way to move forward with your claim to ensure you are getting the most sound tax advice available, we’d also map out a blueprint to account for all future costs which can be included in an R&D tax credits rebate claim.
There are 5 main areas which contribute to a qualifying claim and below are the key factors HMRC look for.
- The staff costs have to go through your entities, it has to be shown on the profit and loss accounts;
- The main areas are Gross pay, National Insurance, Company Contributions, Pension Company Contributions, Reimbursed Employee Expenses;
- Benefits in kind are a no-go;
- We consider the whole team; it’s not just the engineers, we would look at Management, Project Management, Supervisors and people that indirectly support the R&D process such as Finance, HR, Logistics, Procurement etc.
- This is staff that have worked on the project but through an agency;
- It is restricted to 65% of the invoice value and you have to apportion the expenses to the R&D activity/project;
- The time on the projects has to come from someone who has managed the team and understands the activities that have been undertaken, it is always good practice to keep a spreadsheet or time sheet to ensure we can maximise the return on these costs.
- The sub-contractors can be based anywhere in the world as long as the qualifying costs are charged back to the UK entity;
- Again, there is a 65% restriction on the invoice value and you have to apportion the expenses to the R&D activity/project.
- Costs for software licenses that are used for tools to the development activities e.g. CAD Software, Project Management Software, Amazon Web Services, Microsoft Azure;
- It is a no-no for hosting, domain registration and storage costs.
- This means materials that are transformed in the development process e.g. small parts, components that you are purchasing to make into a larger item or component;
- It has to be consumed or transformed to qualify;
- If you are making or doing some trials and you are selling those trials you have to deduct the sale value from the cost – this is very important.
what about large businesses?
It differs with large businesses; large is classed as 500+ staff or more than £100m turnover. An RDEC tax credit is worth 10% of your qualifying R&D expenditure
We would be looking at the same peripherals for SME’s and the below points are relevant to an RDEC claim.
- The credit is taxable at the normal Corporation Tax (19%) rate which effectively means the benefit is worth 11p for every £1 you spend on qualifying R&D;
- The return can be shown on your accounts as ‘above the line’ (ATL) which means it is visible as income;
- The credit can be offset against your tax liability or, in some circumstances, payable in cash.
What's the process for an r&d claim?
The SME scheme has a rate of R&D expenditure tax relief as high as 230%, while the Large Company Scheme has a rate of 130% – meaning you can save a fair amount on your tax bill.
As you can see by our recommendations, we really are easy and a pleasure to work with, so If you are still unsure if your business is eligible to claim R&D tax credits, get in touch for a no obligation chat.
Money Spheres R&D tax specialists will claim for your two most recently-completed financial years. So if your financial year end is the end of Dec 2021, you can claim back R&D tax relief for the years ending 31st Dec 2019 and 31st Dec 2020.
It really is as simple as that.
see our success stories
We offer a purely bespoke solution for your Tax Credits.
Granite & Marble Manufacturer
The client was able to fully pay off their buyout amount from the previous director, using their massive cash injection as the catalyst. The client has been educated on how to run their business as efficiently as possible thus ensuring all future activities are accounted for correctly. The client has been able to invest in some of the latest technology which was placed on the back burner.
Metal sheet fabricator
The business had a massive cash injection during a challenging time due to Brexit and Covid. The client can now to start to account for treble their usual return year on year, which will only increase as they grow. The client is safe in the knowledge that they have the very best possible support for their R&D rebates.
security systems developer
The injection of cash has allowed the business to
explore other areas of security services & products which were in the pipeline. The client can now look at all costs associated with the delivery of their services as claimable costs. The client now has an expert at hand to ask for advice on how to structure their future projects.
Ball Valve Manufacturer
Money Sphere has collaborated with the client across two financial periods with qualifying expenditure related to the fabrication of unique mechanical components used for the advancement of manufacturing line components beyond which were originally designed. We began by consulting senior management to get a better understanding of the commercial sensitivities of the highly competitive market in which the company operates. In turn, this enabled our technical and financial advisors to recognise the motivation that drove the innovation activities. Working with the client we helped the company claim back around £45K worth of corporation tax savings.
Modular Buildings Fabricator
Having identified several key areas of the business which qualified for R&D we were able to to pin point every area of their operation which could amount to a sizeable return. Working with the client we helped the company claim back £100K worth of corporation tax savings across the 2 financial years. This business were just one of many who had never previously claimed and were delighted with the cash injection back into their budiness. We ensured that the company benefited from an advanced understanding of how to track and apply their innovation efforts to support the company’s financial planning and performance. Money Sphere found that the company is regularly forced to overcome the technological uncertainties of fabricating previously unseen engineering solutions and complex modular systems.
Software/IT security systems developer
With around 500K qualifying expenditure across two financial years, the company delivers a variety of robust networking ICT & penetration testing and system selection through its software stacks, reducing interference for the designing and planning of infrastructure solutions to help their client IT operations thrive. Working with the client we helped the company claim back £150K worth of corporation tax savings across the 2 financial years. Market demands and the company’s strategic objectives helped signpost the way to optimising the company’s innovation opportunities and therefore future potential for maximised R&D tax relief. Our technical specialists worked closely with the company and their specialists to produce a robust report, setting out in detail the innovation activity to facilitate R&D tax relief claims
looking for r&d tax relief?
Fill in the form below and a member of our team will be in touch.