Since the financial crash of 2008, it has become increasingly important for taxpayers and companies to minimise costs and reduce tax liabilities. Whilst cuts in the main rate of corporation tax have gone some way to alleviating the negative impact the current economic climate has had on business, some say it hasn't gone far enough. But are companies doing all they can to lift the gloom? Here, Barry James of Leathers LLP discusses potential missed opportunities in relation to Research and Development Tax Relief and claims where you least expect it...
We all like something for free. And I’m sure we’ve all experienced the joy of a tax rebate from HMRC! Sometimes, we’ll sit down to watch the Budget (well, some of us do), and we’ll get good news in relation additional tax reliefs. But, in recent times, any good news is usually offset by a tax hike, or withdrawal of relief elsewhere in the Budget announcements; the books need to be balanced.
It hasn’t always been this way. In the early 2000’s, riding the crest of an economic boom, Gordon Brown gave us R&D tax relief. And incredibly, not only is R&D tax relief still going strong after 15 long years, it has evolved to such an extent that it is actually more beneficial to companies than ever before.
Whilst HMRC do an excellent job of explaining R&D tax relief on their website and the assistance provided by HMRC’s dedicated R&D offices is extremely useful, I’m sure we can all understand that HMRC are not going to run a nationwide advertising campaign telling millions of UK taxpayers how to reduce their company tax bills. After all, we’re in the era of self-assessment and the onus is on the companies to obtain as much relief as possible.
As a consequence, and because R&D relief still has some way to go to shift the “men in white coats” stereotype, there are thousands of companies missing out on R&D tax relief. Depending on the size of the company, unclaimed relief could be in the millions; companies simply do not realise that they will have qualifying R&D expenditure.
This point is perhaps best illustrated with a real life example.
We act for Alexanders Prestige Limited and Alexanders Horseboxes Limited, who trade in prestigious cars and horseboxes respectively. The companies are successful, profitable, and have earned themselves a reputation as market leaders. But they’re in the motor trade, surely there’s no R&D? The companies have been trading for years, they’ve never claimed anything before, surely there’s no R&D?
Using our technical tax expertise, by getting to know the client, their products, their processes and by asking a few simple questions, it quickly became apparent the company had been undertaking some form of R&D for years.
Have you sought a scientific or technological advance?
Did you try to solve scientific or technological uncertainties?
Did you adopt a systematic approach to overcome such uncertainties?
Have you developed patented components or processes?
The answer to all of the questions was “yes”.
The bespoke nature of the development of the company’s horseboxes required innovative thought and technological solutions, particularly in relation to health and safety aspects.
Therefore through thorough investigation and collaboration with the directors, technical staff and support staff, we were able to make a valuable R&D claim on behalf of the company. In addition, we were also able to review the company’s eligibility for the Patent Box Regime, and make an election for future profits to be taxed a lower rate.
The message to companies is simple – check whether you qualify for R&D tax relief, ask yourself the question (or better still, ask an expert!), you might be surprised at the outcome…