Blog Archive

Tips and Tricks - Record Keeping

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In the guidelines set out by HMRC they state that:

“There is no record keeping requirement specifically for the purposes of claiming R&D relief, but the general CTSA requirement to keep sufficient records applies. Therefore, HMRC officers should be flexible in considering what records will be of assistance”

But is that all there is to know?

Well, the answer to that is both yes and no!

If you are making your first claim you may not have realised that your project was eligible for relief under the rules of the R&D scheme, so you would not have been expected to keep accurate records of time spent along the way (although they would expect you to have kept financial records in the usual way).

In this instance the best solution is to make an honest estimate about staff involvement and the percentage of their time spent on R&D activities during the length of the project. If a member of your team has spent 1 day a week on R&D over the course of a one-year project, that would equate to 20% of their total remuneration you can include in your claim.

This percentage can include all of the time spent on development, design, testing, prototyping and problem-solving that each team member has spent and (depending on the job role and involvement in the project) could range from a low to a very high percentage

But what about companies that have made claims in the past and want to claim again?

Well, here it gets a bit more complicated.

Larger companies, claiming through the RDEC scheme, would be expected to have a relatively robust system for recording all of their R&D activity.

For SMEs, HMRC understand that the records kept by individual companies will vary. Although you don’t have to implement a new system or introduce a costly process, they would want to see some evidence in the event of an enquiry.

Timesheet systems are great, but are not always appropriate for every business, so each company needs to find a solution that works for them. It doesn't have to be massively detailed, but having some process of recording activity is highly recommended.

One suggestion is to take minutes during your monthly/quarterly management meetings where you can make brief notes about staff involvement, difficulties or complexities encountered and the solutions that have been developed along the way.

Where possible, if you are purchasing consumables for development, testing or prototyping or if you are using a subcontractor to help with your project, it’s a good idea to itemise bills and include any reference to R&D activity on the invoices. This will make it easier to prove that your expenses are legitimate and will help to capture all of the costs when it comes to calculating your claim.

As always, the best insurance is to compile accurate and well-evidenced R&D claims so, in the unlikely event of an HMRC enquiry, the more straightforward it is to defend.

We are experts in R&D and are very happy to advise on a record keeping process that will work best for your business. Our service includes year round support for every aspect of your R&D work so if you have any doubts or need some advice, please get in touch.

SMEs can save thousands through R&D Tax Relief in FinTech

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Financial Technology (FinTech) has seen exceptional growth in Research and Development (R&D) tax relief claims in the last few years. In 2012, investment in FinTech internationally was $8.9bn whereas in the 12 months to July 2018 that figure rose to $57.8bn, and indications are that it will continue to grow exponentially in 2019. R&D claims will continue to rise alongside it.

What is driving growth in R&D claims in FinTech?

Disruptive software and other technological companies – large and small – have been developing products and services to improve CX (Customer Experience) by improving the speed and security of transactions and the accuracy of financial predictions. This has been a wake-up call to the notoriously slow-moving financial sector that has historically been slow to embrace change.

Who is driving growth in R&D claims in FinTech?

You may be surprised to learn that it is not only the big players in the financial sector such as banks and investment companies that are driving the upturn in R&D claims in FinTech. The increase in smaller companies investing in the development of their own solutions through work that qualifies for R&D tax relief has had a significant impact on the growth of claims.

For example, more and more companies are investing in R&D by applying technology to their financial services such as portfolio management, investments, purchases, payments, international trading, data security and regulatory compliance.

Furthermore, many financial companies, which include Independent Financial Advisers (IFAs) and accountants, have historically paid thousands of pounds in fees each year for licensed software. By developing their own alternatives instead (either internally or through a 3rd party developer) they can eliminate these licensing costs and create a bespoke system that works better for them. As this work qualifies under the R&D scheme, they can also recoup a portion of the development cost, so it soon becomes a win-win.

Which financial sectors are benefiting from R&D tax relief?

Typical examples of R&D work in FinTech that qualify for tax relief are:

• Accounting Software
• Personal Wealth / Investment Software (IFAs)
• The replacement of expensive traditional software with bespoke alternatives
• Security and Data Protection
• AI / Machine Learning 
• Risk Management and Compliance Software
• Complex CRM development 
• Peer-to-Peer Software platforms (trading and transactions)

Why UK FinTech SMEs should be more proactive in claiming R&D

SMEs who develop smaller, disruptive financial solutions are making a considerable contribution to the advance in technology and should therefore be looking to potentially save thousands of pounds with an R&D tax relief claim.

Over half of the emergent, disruptive FinTech start-ups in Europe are based in the UK where there is a very strong representation internationally for software products relating to data/analytics, anti-fraud technology and risk management. 

Whilst it could be argued that a significant portion of the investment in FinTech is taking place in China and the USA, the UK is well placed to compete on the global market. London is a world leading finance centre, but there are also strong financial services sectors in Manchester, Birmingham, Edinburgh, Belfast and Cardiff. 

According to a government commissioned report, “The UK Government is committed to supporting Fintech companies; creating jobs and growth as well as further strengthening our position as the world’s pre-eminent financial services destination. Working with colleagues across government, UK Trade & Investment (UKTI) are leading efforts to attract more inward investment to the UK’s Fintech sector and support UK-based Fintech companies seeking to internationalise their business and services.”

Smaller FinTech companies should carefully review their position with R&D claims

If you are a FinTech company you should consider carefully whether your business qualifies for R&D tax relief. Many smaller businesses assume that it is only larger organisations that benefit from R&D tax relief, but as outlined above this is not the case.

RandD Tax are happy to provide a free of charge consultation to help you determine whether you qualify for tax relief. Get in touch and we’ll be happy to talk you through the process.

R&D Tax - 2018 Review

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2018, A BUMPER YEAR FOR R&D:

We’re getting to the end of 2018, but before we all head off for some mince pies in our Christmas jumpers, we’d love to celebrate a great 2018.

The R&D Statistics report, released in September, showed how much investment there has been in Research & Development by companies in the UK. Almost 40,000 companies (big and small) spent a combined £25bn on developing new products, processes and technological solutions, and those companies have been rewarded (through the R&D scheme) to the tune of £3.5bn.

As you would expect, the majority of claims come from London and the South-East (34%), but there has been substantial growth across the country and both the North-West (11%) and the Midlands (15%) are well represented.

IT”S NOT JUST THE SCHEME THAT’S DOING WELL:

Earlier in the year RandDTax reached the milestone of 1,000 clients and - out of the 600+ claims we have managed this year - it’s really encouraging that over 110 were for new clients that have come on board.

Our total claims for the year have exceeded £19.6m and we are well on track to hit our next target of £100m total claims sometime in early 2019 - we’re already at £97.7m since we launched in September 2012.

The breakdown of our claims reflects the national statistics, with about 75% split between software/IT, manufacturing and technical engineering, but we have clients that have worked on some incredible projects (from the bottom of the sea, into outer-space) dealing with everything from machine learning to clean water and renewable energy, to name just a few.

THE SCHEME IS DOING WHAT IT WAS DESIGNED TO DO:

The scheme was introduced to stimulate and encourage growth in the economy and reward the companies that drive this growth forwards.

R&D development benefits us all on a local, national and international level and more and more companies are investing in R&D to make themselves more innovative, more competitive and more productive – especially useful as we head into some uncharted waters in 2019!

Thanks to all of our clients and partners. We’ll raise a glass to you over Christmas and the New Year, and will be raring to go in January 2019.

Happy Christmas to all!

An appetising boost for the food and drink sector

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R&D tax credits are an appetising boost for the food and drink sector

R&D tax credits are often regarded as being relevant only to technical industries such as science and engineering. Not so. Thankfully this perception is now changing as many other industries realise that elements of their work sit under the research and development umbrella and can therefore be subject to tax relief.

Food and drink is one such sector where there has been an increase in R&D claims. According to the Food and Drink Federation, the industry contributes £28.8bn to the economy and is the biggest manufacturing sector in the country, larger than automotive & aerospace combined. Not small beer then! R&D is prevalent throughout the industry, and businesses are finally understanding that there is help available to facilitate growth.

What is driving R&D in the food and drink sector?

At RandDTax we have identified two areas that are instrumental in driving R&D in the food and drink sector:

Free-from products for allergens and diet preferences

In the food and drink industry, with allergens and nutritional focus, there has been an increase in claims for R&D tax credits to help food and drink businesses meet client and consumer demand.

Whether it’s sugar-free, fat-free, gluten-free, nut-free, dairy-free; businesses within the food sector must now accommodate dietary requirements and preferences to be relevant and competitive. RandDTax recently helped a company that wanted to replicate exiting products using gluten-free ingredients. They were able to claim tax relief on the time and money spent developing the free-from product.

Advances in diagnosing dietary intolerances and trends in life choices such as veganism or a low-salt/low-sugar diet  mean that the production of food now requires extensive research and development which is costly and time-consuming. Soft drink companies have reduced sugars & calories from their products by 18% since 2012; this comes at a cost which companies are loathed to pass on to the consumer.

Upscale in production

Many food and drink companies are having to upscale their production to accommodate different ingredients, recipes, processes and packaging, all of which need to be developed, tested and improved.

We recently worked with a processing company that wanted to automate production because the staff were manually sorting and grading products. They invested in software to control the new, robotic machinery for which they were able to claim tax relief.

There are anticipated advances that will upscale production in brewing and distilling which will be eligible for tax relief such as new bottling or brewing equipment, improved hopping techniques, improved yeast strains or fermentation processes, new or improved can and bottle designs, improved keg filling techniques, water recycling or waste management.

What else can you claim R&D tax relief for in the food and drink industry?

Here are some other examples where claims can be made:

• Specific nutritional requirements such as calorie, sugar or salt reduction, or adding nutritional items such as fibre, protein and vitamins
• Improvements to shelf life, technical processes and efficiencies
• Technological advance to allow a reduction in cost or price
• Packaging where the type and design of the packaging impacts on the product, or there are significant challenges in how to package certain products
• New ingredients such as additives and flavourings and research into how to incorporate them
• Living food and drinks dependent on growing bacteria such as beer, wine and cheese, including where the product is still developing and maturing while on the shelves.

If you’re in the food and drink sector and would like to know if you could be claiming, get in touch for a free consultation.

R&D Tax Relief Claims May Not Be All They Seem…

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At RandDTax we are dealing with an increasing number of clients who have submitted R&D claims, been paid the tax relief and then told by HMRC - maybe years later - that in fact, their claim is invalid. We’re asked to intervene, review the claim and try to salvage it. Unfortunately, this isn’t always possible, and companies are having to pay back money they’ve been awarded because the original claim didn’t comply with the rules.

The money they received is spent, where do they go now? Many companies don’t survive that size of financial hit.

Having an R&D professional in place to guide a company through the minefield of claiming can avoid all the unnecessary time, stress and financial pressure of an incorrect claim. Of course, this is where we at RandD Tax come in, but for anyone considering making a claim, there are a few things worth knowing before you start.

Why are so many invalid R&D claims being incorrectly awarded?

• Only 5% of submitted claims are checked in detail! Shocking isn’t it? This hard-to-believe statistic is due to the large volume of claims being submitted and the limited resources available to the R&D department within HMRC. This has led to complacency and (in some cases) abuse of the system, with companies submitting incorrect or incomplete claims.

• 50% of claims have no supporting documentation Companies rarely understand the full extent of what is required to support a claim. Without the correct supporting documentation, a claim is invalid. There must be a detailed technical justification and a summary of costs attached to every claim.

• Companies that file their own claims often don’t understand the rules Understanding the rules and sticking to them when making a claim is paramount. A specialist will fully explain the rules and check that all the costs are correct.

• The rules and guidelines change slightly each year Companies don’t have the inhouse expertise to keep track of the most up to date criteria and rules. It’s a confusing area as it is, and this really doesn’t help!

• The R&D scheme is complex and detailed Companies are cutting corners by receiving advice from less qualified sources As with any professional service, advising on R&D tax is a specialism that should be left to the experts. Is an accountant, for example, best placed to identify what is a technological advance? Would they be able to defend their claim(s) to an HMRC inspector and explain where the advance in science or technology has occurred?

How secure is your R&D tax claim?

It’s extremely important that all R&D tax claims are accurate and include full supporting documentation. At RandDTax we provide a complete R&D service and our Compliance Team checks every claim before it is submitted. Should there ever be any questions raised or clarifications necessary, we will liaise directly with HMRC on your behalf and (in the unlikely event of a full investigation) we will be there with you to defend your claim. This not only gives our clients peace of mind but protects them now and in the future.

Here’s why there are companies like ours that specialise in R&D tax relief claims:

• Getting a claim wrong is expensive. Getting it right before you submit is much easier than unpicking and defending an incorrect claim if HMRC want to investigate. Defending an R&D claim could cost many thousands of pounds and that doesn’t even account for your own time and resources.

• HMRC can go back 6 years during an investigation and can even extend beyond that period if they suspect previous claims may have been fraudulent or deliberately misleading.  

• Claims are never approved by HMRC, they are simply processed, so receiving a payment does not eliminate the likelihood of an investigation.

• HMRC are clamping down. More and more claims are being checked and they will demand repayment (and can impose significant fines) where R&D tax relief has been claimed incorrectly.

Compliance is key

Every aspect of your R&D claim must comply with the latest HMRC guidelines and the only way of making sure your claim is compliant is by using an experienced R&D company.

You have to remember that a processed claim is not an approved claim and if HMRC discover benefit has been claimed in error, they will expect you to repay the full amount. Many companies carry on in ignorant bliss, focusing on the benefit being received year after year without realising that their claims are incorrect or incomplete and an investigation is waiting just around the corner.

Who processes your R&D claims? Are they qualified to provide the information and guidance you need? Do they have the relevant specialist experience? If not, you are compromising the security of your claim.

Get in touch

If you’d like more information, or you’ve already received a letter from HMRC regarding a badly prepared claim, get in touch to find out how RandDTax can help you to minimise the damage, before it's too late.

DON'T BELIEVE THE HYPE

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Over the last few days I have heard two (independent) stories about approaches being made by a supposedly reputable R&D company in the NW.

The first was a cold call telling an insurance company that they could expect £25k by making a claim. This was without any discussion or assessment about the company’s activity, just a blanket promise that the claim would go through.

The second was to a business coach who was promised £12k because they had to undertake “research” for the service they provided to their clients – stating that they had made similar claims in the past that had been approved.

NEITHER of these companies are involved in any work that would qualify under the scheme and this R&D firm has omitted some really important facts when talking to these businesses.

1. To qualify for relief a business must be attempting to make an advance using science or technology. “Research” must be related to the resolution of a technological issue, so developing concepts, ideas or writing a book does not qualify.

2. An R&D claim is never “approved” by HMRC. Even after a claim is processed, HMRC can launch an investigation, impose fines or demand full repayment at any point over the next seven years.

3. Just because one of your competitors has made a claim it is no indication that you are eligible for relief yourself. You must be able to establish that you have made a technological advance and be able to justify your claim in the event of an HMRC enquiry.

It was by chance that I know the people that run these businesses and it was lucky that they could call me to clarify the position. If they had gone ahead the likelihood is that they would have been forced to repay any benefit received, which would have had profound consequences for both companies.

Everyone wants to get the most out of making an R&D claim but ask yourself a few questions before you are lured by the promise of a big pay-out:

- Are you talking to a specialist or a sales person?

- Have they explained the rules to you and do you understand what qualifies under the scheme?

- Has a consultant scoped your R&D work and are you confident they have identified legitimate qualifying activity?

- Will the consultant help you prepare the correct supporting documentation including a detailed technical narrative?

- If, at some point in the future, HMRC want to launch an enquiry into your claim, will the R&D consultancy firm be there to support you and help you defend it?

I am confident that the vast majority of R&D firms are diligent and adhere to the rules but if there is any doubt in your mind you should double-check with an expert.

As always, if it sounds too good to be true, it probably is!

Using specialists to claim your R&D

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I’ve heard of a few companies recently that are offering an R&D service for fixed fees or very small percentages and although you should never be overpaying, there’s a few questions to ask before you sign up.

1. Are they a reputable company and do the company have a track record of successful claims?

2. Could they be putting your business at risk by giving you incorrect advice?

3. Do they fully understand the scheme and are they going to help you understand the rules?

4. Will they help you maximise your claim by including all allowable costs?

5. Are they going to help you support your R&D claim by preparing a detailed technical justification in the format required by HMRC?

6. If HMRC decide to investigate your claim, are you going to be supported through that process? If there is any doubt in your mind it is always a good idea to talk to a specialist. The consultations are free and the advice you receive will equip you to make the best decision for your business.

As with everything – if it sounds too good to be true, it probably is! 

Maximising your R&D Claim

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Maximising your R&D Claim:

Don’t be put off if your business is loss making or the project you started was ultimately unsuccessful - your company could still benefit from the R&D scheme.

The R&D scheme is designed to reward companies that have invested time, money or resources and once it’s established that you have a qualifying project, it is important to make sure that all the costs are included.

Normally your biggest expense will be from the time you and your team have spent working on an R&D project. As well as a percentage of any salary costs you can include pension contributions and employers NIC in your claim but, unfortunately, dividends can't be included.

Any third party expenses relating to your project can be included, so if you have subcontracted any work (e.g. software development, analysis, testing etc.) you can claim 65% of these costs in your submission.

Expenditure on materials or consumables that are used up or transformed during the R&D process can be added, including any prototypes or samples AND you can also include any direct utility costs. Also, if you have purchased any items that directly relate to the R&D aspect of your project – including certain types of software – you can include these in your claim to maximise the benefit you will receive.

Once you have calculated all of these costs you can then apply an uplift of 30%, which the government allow as an additional incentive. This means that for every £100k of expenditure, you can add £30k to your total claim value!

EVERY business wants to get the most out of an R&D claim but it is important to remember that any cost you include needs to stand up to scrutiny in the event of an enquiry from HMRC.