Part 4 | Tax Credit Calculation

Following on from our last blog we continue this week, explaining how to calculate your R&D Tax Credit Claim.

Factors that can R&D tax credit claims

Your R&D tax credit claim can be affected by anything that causes your R&D expenditure to be enhanced, as any enhancements can affect which schemes you qualify for. We have found that the following are factors that companies need to consider before submitting a claim.

Subcontracted R&D

It is possible to claim R&D tax credits on subcontractor costs which is usually 65% for SMEs; however, when it comes to subcontracting there are different rules that apply and the definition of what counts as subcontracted work can be very specific. For those companies who fall into the RDEC scheme, the subcontractor must be an individual, partnership of individuals or a qualifying body for the expenditure to be eligible.

Find out more about independent contractors and subcontractors and what you need to consider when including their costs in your R&D tax credit claim.

Grants and subsidies

Grants and subsidies are a great way to fund innovation and can work hand in hand with R&D tax credits. With savings of up to 33p for each £1 spent on research and development, the SME R&D Tax Credit scheme is the most generous state aid on offer, though when combined with grants its use may be restricted. Often, if a company has received grants or subsidies, they still qualify for the RDEC scheme, though it returns a lower rate than the SME scheme.

If you have received a grant to fund your R&D activity or are considering applying for one, it is important to speak to an expert who can offer advice on how to maximise your return on investment, because the type of grant that you apply for and the wording of the agreement could impact how much you could receive from your R&D tax credit claim.

Linked or Partner Enterprises

In some cases, you or your company may be linked to a partner or enterprise which can affect whether your company is deemed to be an SME and therefore eligible for the SME R&D Tax Credit scheme. If the below apply to your business, it is likely that your company would be classified as ‘linked’:

the other company owns more than 50% of the voting rights

they can appoint or remove a majority of your management team

they can exert a “dominant influence” over your company

they can indirectly achieve the above via agreements with other shareholders

Understanding whether you are ‘linked’ or not is important because if you are, your numbers would be aggregated with other companies, which may put you over the threshold for SME R&D Tax Credit scheme.

In situations where the company isn’t autonomous or linked, and a partner co-owns between 25 – 50% of the business, and cannot control the company, it is not considered to be ‘linked’ but considered a partner enterprise. In this case, you could still qualify for the SME scheme.

If you aren’t sure where you fit in, our team of experts can help you understand your position and the benefits available to you.

To make life easier for you, why not just use our R&D tax credit calculator.

To unlock a higher level of rebate, you do need a specialist to look at this for you. There are plenty of software applications out there at the moment and even accountants are saying they can complete this work.

Well, they may be able to, but they will not be able to maximise your claim and neither will the software. I generally go by the rule; you get what you pay for. There are always corners we can cut, but there is then generally a price to pay.

So to maximise your R&D claim, please contact us.