The Importance of R & D tax credit

Most large UK businesses are being negatively impacted by the Coronavirus as a result of supply disruption, decreased demand and increased uncertainty. Cash flow is a key concern for the majority of companies with insufficient working capital and external/internal funding critical to ensure business continuity.

R & D Claims

One way of generating extra cash can be the submission of R&D claims – these can result in direct cash credit payments which do not require a company to have paid corporation tax in the first place. Patent Box tax relief can also be used to assist cash strategy in certain circumstances. Many large companies and groups may have not taken advantage of either of these – either because they thought they did not apply to them, or because the benefit was perceived as being small compared to the time and effort required.  

The Chancellor’s recent Budget increased the Research & Development Expenditure Credit (RDEC) rate from 12% to 13% from 1 April 2020 – an effective 8.3% increase to the value of claims.  This means that the cash value to a claimant company is now over 10.5% of the qualifying expenditure.  

Patent Box has remained unchanged but there remain significant untapped opportunities to benefit from this relief. The number of claims being made in the UK remains around one in ten of the number of R&D claims being filed – and the ‘perceived knowledge’ that it is “useless” for non-taxpaying companies simply is not true.

 Dispelling some myths…

“We don’t do R&D”

Think again. The criteria for eligibility are very broad.  ‘Qualifying activity’ is not limited to the obvious example of development of new products. It can just as easily apply to:

  • overcoming technical problems;
  • making improvements to existing processes;
  • changing products or processes to be more efficient or more environmentally friendly;
  • changing products or processes to meet new regulatory requirements; or
  • building and integrating new IT systems.

“It will take too much of our time”

We have established processes which keep to a minimum the time you spend providing information.  With significant experience within the team of working in both industry and HMRC, we know the pragmatic solutions that HMRC will accept – and we know how to be concise and clear while not asking for more from you than we need.

“Patent Box makes no difference if you are not paying tax”

The ‘streaming’ requirements introduced in the 2016 overhaul of the rules can be used to derive value even in some non-tax-paying companies. This can be used to generate extra group relief for other group companies, or to store up additional tax losses as a deferred tax asset.

“We have patents, but they’ve not been granted yet”

Where patents are still pending, it is essential to take action now.  Given how many years a patent application can take to go from filing to grant, it is more than likely that you have been generating profit from that technology for a period of years.  If a Patent Box election is not made during that period, then you lose the opportunity to backdate the rolled-up relief once the patent is granted.

What you can do now

RDEC and Patent Box claims can still be made within two years of the end of an accounting period. This means that, for example, a company with an April year end can still make claims for the year ended 30 April 2018 as at the date of writing. This means a benefit is being derived for expenditure incurred as far back as 1 May 2017.

Get in Touch

If you think you may have undertaken any technological development work, IT system builds, or just spent time trying to overcome technical problems, going back as far as 2017, please reach out to your regular Mazars contact, call or submit a request to Steve Dennett, our Intellectual Property Tax team leader using the form below:

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