Are you too busy to understand how to qualify a client for R&D tax relief?
Well, I have created this episode to help you.
In just over 10 minutes, you will find out which questions you will need to ask your clients to determine whether they may qualify for R&D tax relief.
As these questions do not go into technical detail, they are perfect to help you gather enough information for your internal R&D tax team or for someone like me, an R&D tax specialist that works closely with accountancy firms.
In this episode we are going to let you know of some questions you can ask your clients to easily identify whether they qualify for R&D tax relief. So if you want to learn more, stick around and let’s go!
Welcome to The R&D Tax Show where we help accountants, tax advisers and their clients claim R&D tax relief.
Hopefully by the end of this episode you will be able to easily identify whether your clients qualify or not.
As accountants, you should be aware if your client is a going concern.
SME & RDEC
You need to establish whether your client falls with the SME or RDEC scheme.
In the SME scheme your client potentially receives 25% of relief for qualifying costs and under the RDEC scheme your client will receive approximately 10.5% of relief.
To qualify for the SME scheme your client must have less than 500 employees and have either
- less than €100 turnover or
- €86 million on the balance sheet as gross assets.
To summarise for this episode, by claiming grants you can reduce the amount of R&D tax relief you receive. If you do obtain a grant it can either push part or all of the qualifying costs of a certain project from the SME scheme into the RDEC scheme.
We will make a seperate episode regarding information for grants as it is an important topic.
Advance & overcoming uncertainties
Next, you have to identify whether your client made an attempt to advance in science or technology and if there were any technological or scientific uncertainties.
The first question you can ask is if your client has created any new products, processes, software or machinery.
If yes, then you know they have taken some measure of development and therefore, go further with the enquiry.
The second question to ask your client is during that development did they undertake any work that was not routine or did not follow any established methodology.
This will help you identify whether there were any uncertainties within their project.
If your client is in the construction sector, you could ask them did they develop any houses in the last accounting period?
If they said yes, the next question would be, in the process of building that property did you have anything to do with not following a routine or did you have to do anything that was not following established methods and processes.
Again, if they say yes, it shows that there were technological uncertainties and once you have identified them, you will be able to find some abstract of advancement in technology.
The majority of claims made under the R&D tax scheme are for the development of a product or process. Approximately 10% of claims equate to scientific research, so this is not a substantive area of where claims are made.
It is however still important to recognise whether a company undertakes scientific research
What is scientific research?
This can include developing new medicines, testing chemicals or drugs.
The research element would be undertaking scientific study of the chemicals to understand the effects on people or in specific environments.
Scientific research would include comparative studies. For example, using Compound A in and experiment and then replacing Compound A with Compound A and undertaking the same experiment, and comparing both results.
Once you have established whether your client has either developed a new product, process, software, machinery or has undertaken scientific research and you have understood that they have not followed routine development or established methodologies, you can now go to the next questions looking at costs.
Have they incurred any qualifying costs?
There is no point in qualifying your client’s R&D projects and for them to have no costs because there will be nothing to recoup.
Ask your client if any of their staff members were involved in the project and ask how much of the time as a percentage in the accounting year they worked on the qualifying activities of that project. They can claim a proportion of their salaries, pension contributions and company paid NIC’s, based on the proportion of time spent on qualifying activities.
Ask if any work was outsourced and whether they paid for these services and if they incurred any costs on materials, utilities or software.
In most cases the majority of costs for a project will be staff costs and outsourcing costs.
Going back to the construction sector, materials can be a costly element. You need to identify which qualifying costs will generate a sufficient amount of R&D tax relief for the client. You do not want to submit a small claim that only generates a few hundred GBP for your client and have taken a lot of time to gather the details, as the investment in time for your client may not be worth it.
Is your client a going concern, as they must be to claim R&D tax relief.
The activity or project undertaken by your client has to be in connection with the trade, its either undertaking or whether its planning to undertake in the future.
To summarise, the questions to ask are as follows:
- Is your client subject to UK Corporation tax?
- Is your client a going concern?
- Is your client within the SME or RDEC scheme?
- Has your client developed a new/improved product, process, software or machinery or undertaken scientific research?
- Within this development, did they have to do anything that was not following routine work or established methods?
- Is this development in connection with your clients current or future trade?
- Did they incur any qualifying costs? ( outsourcing, materials, utilities etc.)
- Did they receive any grants or subsidies?