The HMRC Research and Development Tax Scheme was created to encourage business innovation and stimulate the economy, through supporting firms to bring new products and services to market.
Yet, due to time constraints, lack of awareness or doubts around eligibility and the legitimacy of the incentive, there are thousands of companies that are not currently taking part in the scheme, particularly within the fleet management sector.
Research and Development Specialists Ltd (RDS), an expert in helping companies to navigate the Government scheme, is reaching out to firms in the fleet management sector after numerous successful claims for similar businesses; most of which had commissioned custom-built IT systems that made them eligible to claim.
RDS helped to recover nearly £520,000 for Yorkshire-based fleet management firm Autohorn, after it identified that the development of a new piece of bespoke IT software created to streamline Autohorn’s internal processes, made it eligible for tax relief under the Government’s scheme.
Here, Mark Joyner of Research & Development Specialists Ltd (RDS), based in the North of England attempts to demystify R&D in a bid to reach more fleet management companies that could benefit from a cash influx of hundreds of thousands of pounds.
“We’ve had great success within fleet management,” begins Mark. “This type of company tends to have a constantly evolving inventory and each company is slightly different to the next so, there’s not a one-size fits all IT solution that will work for every business.
“Because of these complexities and the need to track and cross reference a large number of vehicles and customers across multiple locations, we often find companies working in this space will invest in bespoke IT systems. The research and development related to this then makes them eligible for tax credits but that’s not widely known.”
What is R&D?
Research and development (R&D) tax credits are a valuable government incentive that rewards UK businesses for investing in innovation. It is a powerful source of funding for businesses looking to grow and develop new products, services, procedures, and internal systems.
There is a misconception that to qualify for R&D tax relief then a business must employ people in lab coats and be undertaking scientific research, but that is not the case. Any type of research and development could qualify.
Any UK limited business can claim. There are no restrictions on the type or size of business although there are different types of R&D schemes depending on whether you fit HMRC’s guide as being an SME or large company.
For the SME scheme, a company must employ less than 500 people and have a turnover of less than £85m or a balance sheet total of less than £73m. An SME’s eligible R&D costs receive an additional 130% deduction when calculating the taxable profit.
Eligibility is focussed on the research project rather than the type of business. Typically, an R&D claim can be submitted for a business’s current and previous financial year.
Some R&D project criteria to be aware of…
The project must relate to your company’s trade, and you must be able to explain how the project:
- Looked for an advance in science and technology.
- Had to overcome uncertainty.
- Tried to overcome this uncertainty.
- Could not be easily worked out by a professional in the field.
Does the project have to be successful?
No, there is no rule that says you need to have a finished product or service brought the market. The research/development phase is enough for you to qualify.
How do I claim the money?
For profitable businesses, the benefit is applied as a reduction in corporation tax. If a claim is historical, the monies will be claimed back as a repayment of overpaid corporation tax.
For companies operating at a loss, the R&D claim will increase the loss arising. This loss can then be set against prior and future profits of the company, or it can be turned into a cash repayment by using a process HMRC calls ‘surrender’, whereby the business takes a slightly lower benefit percentage for the ‘cash now’.
It sounds too good to be true….
R&D Tax Credits are not PPI for businesses. It is a legitimate Government-backed incentive to encourage innovation and has been operating in the UK since 2000.
That said, there are intricacies, including when claiming for other tax relief incentives, as well as criteria to be met, that can make the process seem overwhelming. That is why employing an R&D specialist such as RDS can help take the headache out of making a claim.
More information on R&D tax relief can be found on the Government’s website here: https://www.gov.uk/guidance/corporation-tax-research-and-development-rd-relief
Fraser Maclean, Fleet Director at Autohorn wouldn’t hesitate to recommend that other businesses follow suit and pursue a claim.
“I was dubious at first I have to admit,” begins Fraser. “When you first look at it you think, ‘oh we’re never going to get much from that’, but the amount we were spending on the new software system was a considerable investment, so we decided to look a little closer.
“When we spoke to RDS they gave us the reassurance that this is an incentive the Government is keen to push. Because we had a legitimate development that was already underway to improve the business, we decided to see if we were eligible.”
Following a full financial audit, the team of financial analysts at RDS were quick to identify numerous costs from the software development project that would qualify for tax relief. And because Autohorn has continually invested in the project, it has been able to take part in the scheme over a number of consecutive years, culminating to a claim totalling over £500,000.
Fraser continued: “The software has completely transformed our business. Previously we would have had six different systems to do the same job but now everything is synchronised together in one place.
“We estimate conservatively that it has saved us well over 780 workdays, but to be able to offset the costs as well has been amazing for us really. What it has allowed us to do is continually improve and develop the software and really invest that money back into making our business even more efficient.”
Mark Joyner, added: “If I were to say to you, I’ll give you £53,000 for your business tomorrow, I’m sure there would be lots of things that, as a business owner, you could do with that money. That figure represents the average amount of a successful claim through the HMRC R&D Tax Incentive. It is not a scam or a way to play the system, yet for many reasons, companies that are eligible are not claiming the money to which they are entitled.
“A lot of people think it sounds too good to be true, some are time poor and don’t have the time to investigate the scheme properly and some are just unaware that it even exists. At RDS we simplify the process and take a lot of the leg work away from busy accountants, senior teams or business owners.
“Something that sets us apart is that we’re completely transparent and we give our clients full sign off for a claim at various stages of the process. We hand over the final submission to the in-house team so that they know the full figure they’re claiming for, and our costs are recovered only when a successful claim is submitted, approved, and credited. For us, building trust and working in partnership is the most important part of the process.”