5 ways R&D could save your business
1. R&D Tax Relief for a business with no previous claims
An SME company that qualifies for R&D Tax Credits can receive an extra deduction of 130% of qualifying costs against their taxable profits. This is in addition to the 100% revenue deduction already given. For loss-making companies, the loss can be given up (so can’t be used in future) for an immediate tax credit equating to a maximum of 33.4% of the qualifying costs.
Claims can be backdated for costs incurred up to a maximum of 3 years ago.
Example:
A company with an April year-end incurs R&D costs of £100k per year and has been loss-making as they are currently in the development phase with their product.
They can make an immediate R&D claim for their April 2018 and April 2019 periods. They have already deducted £100k of costs from their annual revenue but can also deduct another £130k per year due to R&D tax credits (130% of £100k). In total, the £100k spent allows them to deduct £230k from revenue.
If losses are large enough, they will receive a tax credit of nearly £67k (£100k x 2 years x 230% x 14.5%). This will be received by the company as tax-free cash.
2. R&D tax relief where a business has built up losses
Some companies have made R&D claims in the last 2 years and decided to carry forward losses made into the future – as it will save them corporation tax in the future. They should consider amending their tax returns now to change the carried forward loss to a tax credit.
Example:
A company has made R&D claims for the last 2 years which has built up an “R&D loss” of £500k. Due to their projected product launch and projected profits from commercialising, they had decided to carry this forward to get future corporation tax relief of £95,000.
Instead, they can file amended tax returns and claim immediate cashflow of £72,500.
3. Maximising previously claimed R&D tax relief
It is worth reviewing all previous R&D tax relief claims to ensure the claims were maximised. If they have not been maximised, amended returns can be submitted to claim additional tax relief.
Example:
The company has not claimed for all materials, heat and light costs, smaller subcontractors, support staff e.g. HR, admin, finance.
The total of all these costs come to £15k a year.
If they resubmit the R&D claim with these costs included, it could give a further £10k tax refund immediately (£15k x 2 years x 33%)
4. Obtaining advance funding for R&D tax relief
Advance funding may also be available for a claim in the current year.
Example:
A company has been making R&D claims for the last 3 years and gets £25k a year back from HMRC.
They have a June year-end, but their accounts and tax usually take 10 months to finalise. Advance funding is available in April 2020 for the June 2020 year-end, which would otherwise only have been received in June 2020. This effectively brings the cashflow forward by 15 months, with only the financing cost to the client.
5. Shorten year-end to accelerate tax credit
For a loss-making company, shortening the year-end so that an R&D claim can be submitted sooner is worth considering.
Example:
A company with a June year-end has R&D costs of £100k and total losses of £100k up to 31 March 2020. They anticipate a much-reduced R&D spend up to June.
They decide to shorted the year-end (9 months to 31 March 2020) which allows them to submit an R&D tax credit claim of £33,350 to HMRC 3 months sooner than otherwise would have been the case.
If you would like to understand if you are eligible then book a 15 minute “rule in, rule out” call with our R&D specialist, book here.
1. Book a call with me: https://southbourneaccountancy.co.uk/contact-us/
2. Download our free guide on “7 mistakes to avoid – to stop your fitness business running out of cash” https://southbourneaccountancy.co.uk/fitness-ebook/
3. Connect with me on social media:
https://www.facebook.com/debbie.hancockSA
4. Book an R&D eligibity call: https://calendly.com/rdteam/15min?month=2020-11
5. Grab a copy of our “32 ways to extract value from your business” – tax savings. Here