The R&D tax credit scheme is well-known among businesses. It’s a lucrative government tax incentive that can credit your company up to 33% of its R&D expenditures.
But while there’s an awareness of the scheme, a number of misconceptions continue to prevent businesses from making a claim.
Read on to debunk 5 of the most popular misconceptions today, and get the clarity you need to make your first claim.
MYTH 1: You have to wear a white coat and work in a laboratory to conduct R&D
R&D happens in all industries, even those without a traditionally scientific basis. EmpowerRD has submitted claims for companies as varied as florists, ice cream makers and jewellers.
While the majority of claims come from high-tech industries such as IT or pharmaceuticals, a surprising number of claims come from less research-intensive industries. For example, according to the most recent statistics from HMRC, £75 million of claims originated from the Arts and Entertainment sector.
Just remember, as long as you’re working towards an advance in your field and facing uncertainty in how to do it, you could very well be doing R&D.
MYTH 2: The R&D needs to have been successful to make a claim
HMRC recognises that R&D does not always result in success. In fact, if the outcome were a foregone conclusion it wouldn’t be R&D at all!
Businesses sometimes think that they can only claim for the R&D that leads to a successful product launch or process improvement. That’s not the case at all. Even if the whole R&D project was shelved with no usable outcome for the business, it would still count as R&D. In that case, HMRC would still allow you to claim for all the costs associated with the shelved project.
MYTH 3: A claim is doomed if a business receives a grant
You are still eligible to claim the Research and Development tax credit scheme as a grant recipient. As long as you fit the HMRC criteria, you can still submit a claim regardless of how many grants are funding your projects.
Whilst you can still claim, there are a few factors where a grant will affect your R&D tax credit claim. Visit EmpowerRD’s website to learn more.
MYTH 4: Loss-making companies can’t claim R&D tax credits
Even if you’re a loss-making company, you have the same right to claim as any other business turning a profit. The goal of the scheme is to encourage innovation, and innovation can happen regardless of your company’s profitability.
In fact, being a loss-making company is the most lucrative way to claim. You can claim up to 33% of your R&D spend, whereas profit-making companies can only claim up to 25%.
MYTH 5: You can only claim when you submit your accounts for the year.
First-time claimants are often unaware of when they can make a claim. You do need to submit your R&D tax credit claim after you’ve closed your accounts for the year, however, you can also make a claim for previous financial periods.
In all, you can make a claim for an accounting period which ends up to 2 years before your R&D claim is submitted to HMRC. So for example, if you find out about the R&D tax credit scheme in December 2022, and you have a year-end of December 31st, then you will be able to make a claim for all the R&D expenditure dating back to your financial period from January 1st 2019 – December 31st 2020.
For this reason, it’s a good idea to ensure that you’re claiming for all your historic costs when you first make a claim through the scheme.
After all that myth debunking, we hope you’ve got a better handle on the scheme. If you think you may be eligible, contact one of EmpowerRD’s experts today to discuss your specific situation.