Episode 9: Do you know if your clients qualify for R&D tax relief?

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Today’s episode is to help accountants and tax professionals identify if they have qualifying clients for R&D tax. 

Stick around to learn more.

Lets Go!

Hi Welcome to The R&D Tax Show. The show helping accountants, tax advisers and their clients claim R&D tax relief. 

I am Tehsin, the founder of GrowthPad and we partner with accountants to provide your clients with R&D tax services. 

This week we are on Episode 9 – Do you know if your clients qualify for R&D tax relief?

Introduction

Over the last month, my colleague Tosh and I have been having conversations with accountants with the aim of developing partnerships so we can provide R&D tax services to their clients. 

The main wall we face from accountants is that they believe that they do not have any qualifying clients. This is prior to us educating them. Once we have provided them with education about the definition of R&D for tax purposes and give some examples of qualifying projects, they usually have a few clients who may qualify. 

We understand that being an accountant is difficult as you have to wear many hats – auditor, management accountant, bookkeeper, tax adviser (for each tax specialism), financial accountant and the list goes on.  

This video and The R&D Tax Show was created to help you and make your job that tiny bit easier. 

Firstly we will cover who qualifies for R&D tax relief and then we will go into the examples of sectors that R&D exists for tax purposes. 

Who qualifies for R&D tax relief?

R&D tax relief allows businesses subject to corporation tax (LTD’s, PLC’s and CICs) to recoup costs associated with activities in connection with research and development. 

In order to qualify for R&D tax relief, there are three conditions to be met.

  1. The business must be a going concern, subject the corporation tax system and the R&D must be related to the current or future trade of the business. 
  2. The project must meet the definition of R&D for tax purposes (see below).
  3. Qualifying costs must be incurred and paid by the claimant.  Qualifying costs include:
    1. Staff
    2. Consumables (materials)
    3. Outsourcing (subcontractors and externally provided workers)
    4. Software
    5. Utilities
    6. Payment to volunteers for clinical trials 

R&D tax definition

We have simplified the definition of R&D provided by the BEIS to the following: “R&D for tax is the seeking of an advancement in science or technology by attempting to overcome scientific or technological uncertainties.” 

Seeking an advancement 

Most accountants understand that the “advancement” is groundbreaking innovation within science and technology, which includes the overall push in the field of science and technology by creating new products, processes and software. 

Accountants however miss that an appreciable improvement is also an advancement, resulting in their client missing out on tax savings. 

What is an appreciable improvement

This is the development of a product, process or service that already exists however making it better. For example making it faster, lighter, stronger, more efficient or cheaper. 

An appreciable improvement is not a minor or routine upgrade.

Furthermore, as the criteria seeks an advancement, the project does not have to succeed i.e. failed projects can also qualify. 

Overcoming uncertainties

Once you have established that an advancement in science or technology has been attempted, you must determine if your client tried to overcome any scientific and technological uncertainties. 

An uncertainty is the knowledge or whether something is scientifically possible or technologically feasible or how to achieve it in practice is not readily available.

The way I explain to my clients to look at an uncertainty is as follows:

Let’s say the project starts at A and finishes at Z. From the outset, you know some of the problems you will encounter to get to Z, but during the actual development you will also encounter additional problems. These problems are uncertainties and you must encounter technological and scientific uncertainties. This excludes commercial uncertainties that do not relate to the actual development. 

Competent professionals 

The uncertainty must not be readily deducible by a competent professional. 

A competent professional does not need to be an expert or leader in the field but a competent professional. 

This shows to HMRC that the project undertaken by the company has been genuinely difficult to do with a trained professional struggling with the process. If no trained professional attempts the tasks or project then they will not qualify. 

Brochure

Now that you have an understanding of what qualifies, let’s go into examples of R&D for different sectors.  We will cover some examples of R&D tax relief, but this brochure we have created for accountants will go into more detail for each sector. 

Download your copy here

Engineering

Starting with the engineering industry. 

The engineering industry is huge in the UK and it includes:

  • Civil engineering
  • Mechanical engineering
  • Architectural engineering
  • Product engineering
  • Structural engineering

For this example, let’s say your client designs and manufactures boilers. Your client is attempting to create a boiler that is compact but can produce enough energy to commercially compete with larger boilers in the market.  

This would qualify for R&D! 

Why would it qualify? 

Your client is developing a boiler that is smaller than existing boilers but it provides the same output of energy as larger boilers. 

Cosmetics 

Let’s completely digress to the cosmetic industry.

One of your clients develops makeup. The company however has to obey to new regulations that were introduced for environmental reasons. 

The company has a popular foundation that contains an ingredient that will no longer be allowed to be used. The company therefore attempts to create the same foundation (well the same look and feel) using alternative ingredients.  

Why would this qualify? 

This would qualify for R&D as your client has had to change their ingredients  to adhere to new regulations. 

Construction

A client of yours is a property developer and they have created a development that is sustainable throughout. The developer explored new methods to remove wastage from the property by creating a new sustainable drainage system and created a new method for land mediation to minimise the effect on the surrounding environment. 

Why would this qualify?

This qualifies for R&D tax relief as the property developer created a new drainage system and improved the process of land mediation. 

Food and drink

A food and drinks company has a drink that contains all of your five a day. However as people are becoming more health conscious, the company wants to reduce its sugar content by 80%, without changing the taste of its commercial successful drink. 

Why would this qualify?

The company has improved its existing formula to decrease its sugar content by 80% and also maintained the same taste and kept its five a day content. 

Professional services – Law firms

You have a law firm as a client and they use a legal case management system (developed by a third party) that was developed for desktop computers. 

The law firm wants to improve its own processes so the firm develops its own software to integrate into this case management system to automate processes saving time and costs. It also creates an app that enables uploading documents to the case management system.

Why would this qualify?

The firm has developed its own tools to speed up its process and this improves efficiencies within the firm. 

Tourism and hospitality

A hotel wants to improve their customer experience and ensure their time at the premises is stress free. The hotel has developed a wrist band with a microchip implanted in it. 

The microchip is accompanied by wireless devices placed around the hotel for customer facilities, such as towel hire. If a customer wants to borrow a towel then all they would have to do is place their wrist band close to the wireless device, which will grant the customer access to the towels. 

Why would this qualify?

This process eliminates the need for any cost for staff monitoring towel hires and increases customer satisfaction by improving an existing process. Therefore, qualifying for R&D tax relief. 

Bye!!

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Tehsin Khan

Tehsin Khan

Tehsin is an experienced tax professional with 12 years of experience helping companies and individuals save money. He has worked for the most reputable tax firms in the country before setting up GrowthPad. In his spare time, Tehsin contributes to national tax publications and plays the odd game of football.

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