R&D tax relief and Capital Allowances

A capital allowance is an expense that a company can claim against its taxable profit, reducing its tax liability and improving cashflow. In the UK there are several different types of capital allowance, covering Plant and Machinery (P&M) as well as more specific costs including research and development and patents.

Like R&D tax relief, capital allowances can be misunderstood and often underclaimed. Here’s our brief guide to the benefits of claiming capital allowances, and how this affects claims for R&D tax relief.

How do I go about preparing a claim for Capital Allowances?

Much like preparing a claim for R&D tax relief, the key thing when preparing a claim for capital allowances is to know which capital allowances your client is able to claim, and which costs can be included.

In the context of claiming R&D tax relief, the key capital allowances to consider would be the Annual Investment Allowance (AIA), which covers most plant and machinery (except cars), and Research and Development Allowance (RDA), which covers capital expenditure incurred for carrying out R&D, and for providing R&D facilities.

Once you’ve identified which capital allowances to claim, it’s then a case of combing through your client’s capital expenditure in the tax year to identify which costs can be claimed and which allowance is most suitable for each particular cost.

What benefits come from claiming Capital Allowances?

The main benefit of claiming capital allowances is that it enables a company to reduce its corporation tax liability, either in the year that the capital asset was purchased or over several years. For companies carrying out R&D, being able to deduct the full cost of R&D facilities in the year in which they were purchased would improve cashflow and potentially justify continuing or expanding R&D efforts, especially where claimed in conjunction with R&D tax relief.

How do Capital Allowances and R&D tax relief interact?

The short answer to this one is that they don’t! R&D tax relief and R&D allowance are complementary schemes, where the costs claimed in one cannot be claimed in the other. However, they do share the same definition of research and development, with a couple of notable additions in the case of RDA to cover oil and gas exploration.

If your client is carrying out R&D as defined in CIRD81300 and you’d advise them to claim R&D tax relief, it’s almost certainly worth extending that conversation to cover RDA.

This could enable your client to get tax relief on capital costs that you’ve had to exclude from the R&D tax relief claim, which can include research facilities, research equipment, even cars used by employees to travel between research sites!

Look out for a guest blog post from Alan Cadden of Cavetta Consulting in the next week or so, where Alan will talk about the top 5 tips for claiming Capital Allowances on property.

Alan will also be joining us as a guest speaker at our webinar on 27th April – book here!


Brush up on the fundamentals of the R&D tax relief scheme

Streamline your claims processes and get expert advice on the R&D tax relief scheme.

Download your copy of our eBook.WhisperClaims ebook

Feature of the Month | Checking for Eligibility: How is this done, and how can the WhisperClaims app help?

For many of our users, determining whether their client is eligible for R&D tax relief can be challenging. Happily, due to the way the WhisperClaims app is set up, they can use it to assess the basics of eligibility as they go along, and without being charged for the report. However, before I get into the details of how this works, let’s take a moment to talk about assessing clients for eligibility and why it’s important.

What do we mean by eligibility?

When we talk about eligibility in this context, we’re considering two things: is the entity able to claim R&D tax relief, and do its projects meet HMRC’s criteria for eligibility?

For an entity to be able to claim R&D tax relief, it must be a limited company that is liable for UK corporation tax and be a going concern at the time of making the claim – all pretty simple, but easy to forget in the throes of thinking about technical eligibility and costs.

For a company’s R&D work to be eligible for R&D tax relief, it must:

  • Be aiming to make an advance in Science or Technology;
  • Require the resolution of Technological Uncertainties;
  • Be undertaken as part of a project; and
  • Be led by competent professionals

These points can be difficult to assess in real-life situations, and requires the input of the technical team at the claimant company.

How can an app assess eligibility?

The short answer is it can’t – not by itself anyway!

The technical report is submitted to HMRC alongside the relevant corporation tax return. You can find out more about this process in a previous blog, but in essence it’s pretty simple – you can either upload the report to your tax filing software, or email to HMRC.

How does report generation in WhisperClaims work?

Report generation in WhisperClaims is remarkably straightforward – of course, by the time our users come to generate the report they’ve already done the hard part and entered all of the information about the claim!

Once you’ve entered and reviewed all of the claim information, report generation couldn’t be simpler – all you have to do is finalise the claim, which locks down the answers and enables the system to accurately produce the report. To access the report, you’re taken through the paywall, then it’s a simple matter of downloading. It couldn’t be easier, or indeed faster – from clicking ‘Finalise’ to reading the report is a matter of seconds!

What is an R&D tax relief technical report?

The aim of a technical report or technical narrative is to convince HMRC that the R&D tax relief claim is valid and answer any initial questions they might have about the claim. A good technical report manages to do all of this concisely and without introducing any red flags!

The technical report needs to cover all of the key things that HMRC is interested in when assessing an R&D tax relief claim:

  • Which areas of science or technology was the company operating in?
  • What technical advances did the company seek to make during the claim period?
  • What technical difficulties did it meet along the way?
  • Did the company use competent professionals to carry out the work?

What do I do with the technical report?

The technical report is submitted to HMRC alongside the relevant corporation tax return. You can find out more about this process in a previous blog, but in essence it’s pretty simple – you can either upload the report to your tax filling software, or email to HMRC.

How does report generation in WhisperClaims work?

Report generation in WhisperClaims is remarkably straightforward – of course, by the time our users come to generate the report they’ve already done the hard part and entered all of the information about the claim!

Once you’ve entered and reviewed all of the claim information, report generation couldn’t be simpler – all you have to do is finalise the claim, which locks down the answers and enables the system to accurately produce the report. To access the report, you’re taken through the paywall, then it’s a simple matter of downloading. It couldn’t be easier, or indeed faster – from clicking ‘Finalise’ to reading the report is a matter of seconds!

Identifying eligible clients in Architecture

Something we hear time and again from our clients is that they struggle to identify clients in their client base who would be eligible to claim R&D tax relief. So, in this blog series, we’ll be digging into some less obvious sectors and discussing what to look for when assessing eligibility!

In the latest of this series, we’re looking at Architectural Practices. As with our previous subjects, the level of eligible R&D to be found in this area is misunderstood, and very often overestimated. However, if you know what you’re looking for this can be a good area to look for eligible clients.

What to avoid

As with our previous subjects, it’s worth taking the time to first think about the types of Architectural practices that don’t do any eligible work. As with other service-based companies, most of the core work done by Architectural practices is not eligible for R&D tax relief. This includes day-to-day design of standard constructions, where the knowledge of how to build these structures exists and is well documented. These activities don’t require advancements in science or technology and are therefore not eligible.

Beyond this, practices that focus solely on the aesthetic and art-based side of architecture are less likely to be doing eligible work. The drawing and design of structures without reference to, for example, the engineering challenges inherent in building them, would not require the practices to make advances in science or technology.

Ok, so what should I look for?

So, now that we know what ineligible architectural R&D work looks like, what areas should you be focussing on?

Environmental concerns

Buildings account for a large proportion of energy consumption in most developed nations, so architects are under huge amounts of pressure to design and build energy-efficient buildings. This can require advances to be made in materials science, for example in the design and use of more solar efficient glass for office blocks. Reducing water use can require the use of optics, engineering and chemistry to design advanced water filtration and reuse systems. In all of these areas multi-disciplinary Architectural Practices can be required to resolve technical uncertainties to ensure that structures meet stringent environmental targets and regulations.

Development of software tools

Following on from work done on analytics and big data, Architectural practices sometimes carry out qualifying work in the area of software development. The development of new software tools to enable, for example, Virtual Reality technology to be integrated into a design process would be eligible for R&D tax relief, as long as it requires advances to be made in software science.

Development of software tools related to Business Information Modelling (BIM) can also require advances to be made in Big Data, data modelling and 3D modelling, making it eligible for R&D tax relief.

Prefabricated components

The use of prefabricated components in construction is becoming more common, due to the cost and time savings as well as the reduction in waste and energy consumption. Although the use of off-the-shelf prefabricated components would not constitute eligible R&D, the design and development of the components themselves could, if it required advances to be made in technology.

A common use for prefabricated components is in building cladding, enabling certain aesthetic effects and/or environmental requirements to be met. Again, while the use of these components would not necessarily involve any eligible R&D, the design of new cladding and cladding installation systems can be a rich seam to tap.

SME scheme or RDEC?

When analysing the work done by your Architectural Practice clients, it’s worth taking the time to think about how they structure their work, and which elements of the work can routed through which R&D tax scheme. These Practices are often contracted by their clients to do R&D on their client’s behalf, and the costs of these projects would have to be claimed through the RDEC scheme. Some of the types of work discussed above are done in-house on the practices’s own behalf and can be claimed through the SME scheme, but much of it is not and it pays to be careful about separating out the two streams!



Brush up on the fundamentals of the R&D tax relief scheme

Streamline your claims processes and get expert advice on the R&D tax relief scheme.

Download your copy of our eBook.WhisperClaims ebook

The PAYE Cap: How does this affect my clients’ R&D claims?

As expected, Budget 2021 confirmed that the PAYE/NIC cap on payable credits will come into force on the 1st April 2021. While this has been long expected, there’s still some confusion in the industry about how this will affect SME R&D tax credits claims, so here’s our quick guide!

When will I have to start taking account of the cap?

The applies to any accounting periods ending after 1st April 2021, so it’ll be a few months before most advisors will have to start applying the cap when calculating the available tax credits. Claims for R&D tax made for accounting periods that start before the 1st April 2021 and finish after will need to consider the cap for the period that falls after this date.

How does the cap work?

The amount of payable tax credit that an SME can claim is capped to £20,000 plus 300% of the company’s total PAYE and NIC liability for the period. So if a company has paid out, for example, £50,000 in PAYE/NICs in the claim year, the maximum tax credit it can claim is £170,000. This equates to a surrenderable loss of over £1m, and an eligible spend of £500-£900k. This is a huge amount for a company of 10-20 staff to spend, so you can see that the cap is unlikely to affect companies with more than a few staff.

Which companies are likely to be most affected?

The most affected companies will be small, loss-making start-ups who spend a lot on subcontractors. For example, a company with two directors on minimum salaries won’t pay anything out on NICs or PAYE. In this scenario, assuming that they make a loss for the year, the maximum tax credit they’d be able to claim is £20k (approximately £60-100k eligible spend).

Will the cap affect profitable companies?

The cap only applies to companies that are either loss making, or those that create a loss through the R&D enhancement, and who want to surrender the loss for a payable cash credit. It won’t affect the reductions in tax liability available to profitable companies, or companies that choose to carry forward losses rather than surrendering them.

Are there any exemptions to the cap?

A company is exempt from the cap if it is creating or managing IP, and less than 15% of the eligible expenditure is on subcontracting to or EPWs from connected persons. The legislation defines IP as ‘any patent, trade mark, registered design, copyright, design right, performer’s right or plant breeder’s right’, which is fairly narrow and means it’s unlikely that many companies will meet the exemption criteria.

How can I find out more?

Both the Policy Paper and the Draft Legislation are available online, and contain all of the information you could ever wish to know about the cap!


Brush up on the fundamentals of the R&D tax relief scheme

Streamline your claims processes and get expert advice on the R&D tax relief scheme.

Download your copy of our eBook.WhisperClaims ebook

Your Ask Me Anything Questions Answered

Thanks to everyone who joined us at our Ask Me Anything webinar on Thursday 11th February. This is a webinar series designed exclusively for WhisperClaims customers with one simple objective – to help build your confidence in delivering an effective R&D service for your clients.  This week we kicked off the session with a deep dive into some common areas of confusion, which led to some great questions being asked by our attendees. We’ve answered those below.

If you have any feedback on our advice or how the webinar went please get in touch – we’d love to hear from you!

Q&A

Kick-off questions

How do I include furloughed workers in an R&D tax relief claim?

We’re increasingly being asked about furlough payments and R&D tax relief as our clients start to prepare claims the cover the lockdown periods. We’ve written about furlough and R&D claims before, but, in short, you have to exclude the time an employee spent on furlough from the claim, and then apportion the remaining time to R&D. For example, if a staff member was furloughed for 50% of the claim period, and then spent 50% of their time on R&D, you’d include 25% of their staff costs in the claim.

My client used covid-19 funding on their R&D work – how do I reflect this in their R&D tax relief claim?

Again, this is something we’re being asked more and more as the affected claims start washing through. We have written about this before as well, but the key points on this is that all of the support – CBILS, BBLS and local authority grants – are grants and therefore affect how much of an R&D claim can be claimed through the SME scheme.

The directors at the claimant company are paid as subcontractors – can I claim for these costs?

This is a tricky area of the scheme, and there’s really no definitive answer. What we can say for definite is that Director’s cannot be EPWs for the purposes of R&D tax relief – that is specifically dealt with in the guidelines. Unfortunately, the guidelines say very little about Director’s as subcontractors, but taking the rules about subcontractors into account, it seems clear that a Director would have to have a contract with the company to carry out specific tasks related to the R&D to be able to meet the criteria for qualifying subcontractor costs. Where there is no contract, or a contract to provide the services of a Director to the claimant company, it would be difficult to argue that this meets the criteria for eligibility.

Your questions

1) How do HMRC view claims for ongoing refinement and development costs?

One of the key criteria for work to be considered eligible for R&D tax relief is that it is undertaken as part of a project with a tangible start and end. This means that ongoing refinements and optimisation that form part of a company’s day-to-day business, and that do not fall under and specific projects, would not be eligible for R&D tax relief.

2) I am preparing an R&D claim for a company with the project that started in the previous year. Can I include the costs for the previous years on the same project in my claim?

In short, no! You can only include the costs incurred or that hit the P&L during the claim period in each claim. However, it is absolutely fine to claim for the same project for several years, assuming that the work took place over several claim periods. You can also go back and claim for previous years for up to two years from the end of the claim period.

3) I was approached by a company who has several projects potentially R&D eligible. Can I pool these projects together for the claim purposes or do I need to keep them separate?

In your initial discussion with this company, we’d advise that you discuss and assess the projects separately, so that you can be sure that each individual project meets the criteria for R&D tax relief eligibility. However, once you’ve done that, the WhisperClaims app is designed in a top-down way, meaning that the costs and projects are entered holistically and not as separate projects.

4) How does the fact that the company has a patent or registered design affect the eligibility to R&D claim?

Having a patent or registered design does not directly affect a company’s eligibility to claim R&D tax relief, although having or applying for patents does suggest that the company is undertaking innovative work. One thing to note is that the costs related to applying for a patent cannot be included in an R&D tax relief claim.

5) I have few companies pursuing innovation in education sector, is there a scope to claim R&D in there?

The quick answer to this one is in general, no, you won’t find much eligibility in the education sector. Education and a lot of the research that goes around it would fall under the heading of social science, which is ineligible for R&D tax relief.

6) What content do you recommend including in the additional detail of the WhisperClaims report to tailor the reports for each client?

The additional detail section is designed so that you can describe your clients projects in more detail, so we recommend focussing on the technical aspects – make sure that you include information on the baseline, technical advances and uncertainties for each project, and avoid including too much commercial detail.

7) The self-assessment deadline was extended slightly.  Have you heard any chatter about something similar for R&D two-year cut offs?

No, we’ve heard nothing at all about potential extensions.

8) How does HMRC check R&D claims and what triggers the check from HMRC and what are the time frame please? What happens if HMRC rejects claim after additional check and what are the implications for the accountant? Finally, other than reducing the R&D claim, what kind of penalties do they typically issue?

This is a big set of questions that needs some explanation – we’ll cover this individually in a later blog!

9) Could an inter-company loan every be seen as a subsidy of R&D?

Looking through CIRD80000, no mention of loans is made at all in the context of subsidised expenditure. This has been taken to mean that, with the exception of the government-backed coronavirus loans, taking a loan to fund R&D will not affect a company’s ability to claim R&D tax relief as it is not considered a subsidy.

In this specific case, this should stand as long as the loan is paid back. Where it is not, it could be seen as a tax avoidance mechanism by HMRC, as described in CIRD91700.


Brush up on the fundamentals of the R&D tax relief scheme

Streamline your claims processes and get expert advice on the R&D tax relief scheme.

Download your copy of our eBook.WhisperClaims ebook

Identifying eligible clients in the Care Sector

Something we hear time and again from our clients is that they struggle to identify clients in their client base who would be eligible to claim R&D tax relief. So, in a new blog series, we’ll be digging into some less obvious sectors and discussing what to look for when assessing eligibility!

In the next part of this series, we’re looking at the care sector, and more specifically, care homes. In a change from our previous subjects, this is an area in which you’re very unlikely to find eligible R&D. In this blog we’ll attempt to explain why this is, and highlight the few areas that are worth focussing on with your care home clients.

What to avoid

As with our previous subjects, it’s good to start out with an understanding of the types of care homes that don’t do any eligible work. In this sector, unfortunately, the answer to this is most of them!

The main thing to avoid here is small entities, usually single or small groups of care homes. At this scale, it’s highly unlikely that there will be any eligible work going on, mostly because there’s nothing technical or scientific about the core business, and no urgent need to make scientific or technical advances to improve their services.

Moving up the scale, larger care home groups are likely to undertake regular, large projects to improve their facilities and service offering. However, these are often focused on commercial or logistical innovations, and again wouldn’t require the company to make scientific or technical advances.

At this point, you’re probably wondering if it’s worth thinking about your care home clients at all in the context of R&D, and you’d be right – you’re unlikely to find anything. That said, there are a few narrow areas it might be worth looking at. You’ll probably also have seen or heard about care homes that have made ‘successful’ R&D tax claims, so we’ll address some of the types of things that they are claiming for.

Food production

As we discussed previously, recipe development and food production at the small commercial kitchen scale is unlikely to be eligible—there’s just little scope to be making any kind of advance in food science. This applies even where care home residents have complex nutritional needs—it’s highly unlikely that individual homes will be doing more than designing bespoke menus for residents, which doesn’t require any advance to be made in food or nutritional science.

Even at the larger scale, it’s unlikely that larger groups of care homes will have any eligibility in this area, unless they have a central food production facility. If this facility undertook in-depth research into, for example, increasing the caloric density of common foods or increasing the shelf-life of ready-meals, and this work represented an advance to the food production industry as a whole, there might be scope for making a claim for R&D tax relief.

Logistical advances

Quite often, when discussing the projects undertaken in Care homes, the projects are entirely logistical in nature. This can range from menu planning, as discussed above, to developing exercise timetables, or rearranging rooms and activities to reduce contact between residents during infectious disease breakouts. Whilst all of these projects can be complicated and expensive, they would not qualify for R&D tax relief – they simply do not require advances to be made in science or technology.

Software development projects

Within the Care sector, the use of advanced software systems to track residents’ needs and preferences, or to manage staff rotas is becoming more and more common. The implementation and optimisation of these systems is time-consuming and occasionally very difficult, but, like the logistical projects discussed above, will not qualify for R&D tax relief as no advance is being made in technology.

In some cases, companies within the care sector will require bespoke software to be built for particular functions. For these companies to be able to claim for this type of work, they’ll have had to arrange it in one of two ways:

The first option is to have hired in-house software developers who are able to build the required software and identify where the advances and technical uncertainties lie. This would lead to a robust and straightforward claim for the care sector company.

The second, and more common option, is that the care sector company subcontracts the development work to a third-party software developer. In this situation, the care sector company would only be able to claim if they know upfront that their work requires advances to be made in software science, and the contract is explicit about this need for R&D.

Supply chain

As with a lot of the less eligible sectors we’ve discussed, the supply chain to the care industry is far more likely to yield eligible claims than the industry itself. For example, developers of tracking software that enables care home workers to know the whereabouts and condition of their residents in real time point are likely to be making advances in software science, and food manufacturers producing goods at a large scale to supply into care homes could be advancing food science.

Overall, for us the care sector is a ‘no, but’ industry when it comes to R&D tax relief, so it pays to know what you’re looking for in this sea of ineligible companies.



Brush up on the fundamentals of the R&D tax relief scheme

Streamline your claims processes and get expert advice on the R&D tax relief scheme.

Download your copy of our eBook.WhisperClaims ebook

Identifying eligible Digital Agency clients 

Something we hear time and again from our clients is that they struggle to identify clients in their client base who would be eligible to claim R&D tax relief. So, in a new blog series, we’ll be digging into some less obvious sectors and discussing what to look for when assessing eligibility!

In the latest of this series, we’re looking at digital agencies. As with our previous subjects, the level of eligible R&D to be found in this area is misunderstood, and very often overestimated. However, if you know what you’re looking for this can be a good area to look for eligible clients.

What to avoid

What not to look for: Social Media

As with our previous subjects, it’s worth taking the time to first think about the types of digital agencies that don’t do any eligible work. As with other service-based companies, most of the core work done by digital agencies is not eligible for R&D tax relief. This includes the design and management of PPC campaigns, and the management of social media channels and advertising. These activities don’t require advancements in science or technology and are therefore not eligible.

What not to look for: SEO Optimisation Agencies

Beyond this, agencies that focus solely on Search Engine Optimisation (SEO) are often far less eligible than you might expect! Analysing and adapting websites to improve SEO performance is out, as it tends to use standard tools and techniques. Similarly, working out the impact of and how to overcome changes in search engine algorithms is not automatically eligible, as it can often be done using current knowledge and standard processes.

Ok, so what should I look for?

So, now that we know what ineligible digital agency R&D work looks like, what areas should you be focussing on?

Data Analytics and Big Data

What to look for: Big Data

Companies developing new, high-performance algorithms to analyse the huge volumes of data generated by marketing agencies are often eligible for R&D tax relief. These digital agencies often have a team of mathematicians and data scientists, and work on developing innovative tools for other digital agencies to exploit.

Development of software tools

What to look for: Software InnovatorsFollowing on from work done on analytics and big data, digital agencies often carry out qualifying work in the area of software development. The development of new software tools to enable, for example, the integration of disparate social media channels would be eligible for R&D tax relief, as long as it requires advances to be made in software science.

Software tools that incorporate advances in data science, for example the creation of tools that enable digital agencies to exploit the big data algorithms developed by their data scientists, are often eligible.

Virtual Reality

What to look for: Virtual Reality

At the very cutting edge of digital agency work are those agencies working to extend and improve the use of virtual reality to create completely immersive experiences. This requires, for example, the creation of software capable of processing and displaying hundreds of images at the same time to create a fully 3D world, whilst also allowing the software to be run on standard hardware such as mobile phones.

SME scheme or RDEC

When analysing the work done by your digital agency clients, it’s worth taking the time to think about how they structure their work, and which elements of the work can routed through which R&D tax scheme. Digital agencies are often contracted by their clients to do R&D on their client’s behalf, and the costs of these projects would have to be claimed through the RDEC scheme. However, the types of work discussed above are usually done in-house on the agency’s own behalf, and can be claimed through the SME scheme.



Brush up on the fundamentals of the R&D tax relief scheme

Streamline your claims processes and get expert advice on the R&D tax relief scheme.

Download your copy of our eBook.WhisperClaims ebook

Where will I find eligible R&D in 2021?

We made it – we’ve slogged our way through ‘quite a year’, and 2021 is finally here – hooray! And yet we’re still in lockdown, schools are closed and companies are struggling, so the light at the end of the tunnel is still a long way off. We know that our customers went above and beyond throughout 2020 to support their corporate clients, making sure that they accessed any and all appropriate sources of funding, including R&D tax relief, and are now looking to do the same in 2021.

To help with this, here’s our guide on where to look for eligible R&D in your client base this year.

2020 Pivots

The COVID-19 crisis and its associated difficulties—from the total shutdown of many industries to the challenges of homeworking—has led to a huge number of companies pivoting their business models, products, delivery methods or in fact every aspect of their business. Where these pivots have required an advance to be made in science or technology, it’s likely that the company will be eligible to claim R&D tax relief.

R&D Prediction of Cloud Storage as a Sector for eligiblity

For example, a huge number of software companies have moved to the cloud or developed new online tools to support remote businesses. Where this requires advances to be made in computer science, there’s a claim! Other examples include manufacturing companies developing new and improved PPE, and distilleries finding more effective ways to make hand sanitiser. As long as there’s an advance, there’s a claim!

Trends in Technology

R&D Prediction of 5G Data as a Sector for eligiblity

Alongside the huge amounts on innovation driven by COVID-19, the world of technology continues to grow and change. Companies working on the introduction of 5G networks to not just consumer electronics but also the manufacturing industry will doubtless be carrying out huge amounts of R&D into how best to harness and exploit the potential introduced by increased data transfer speeds.

R&D Prediction of Artificial Intelligence as a Sector for eligiblity

AI continues to be both a meaningless buzzword and a key area of development in a whole range of industries, from insurance companies looking to improve their risk assessments to medical imaging companies producing devices to predict how well a wound will heal.

R&D Prediction of Cybersecurity as a Sector for eligiblity

Cybersecurity and authentication will also become more and more important in a more remote world, with the need to have secure access to sensitive company data for dispersed workforces causing more than a few problems for software development companies.

Ongoing trends

Alongside these newer trends and pressures, huge numbers of companies continue to carry out R&D in response to changes in their industry and the wider world. From making products more environmentally friendly and reducing carbon footprints to the development of alternatives to fossil fuels, environmental issues continue to motivate companies across all sectors to carry out eligible R&D.

R&D Prediction of Veganism as a Sector for eligiblity

Cultural changes are also playing their part. Over the past few years, for example, the demand for vegan food products has skyrocketed, bringing with it a huge number of R&D tax relief claims for food manufacturing companies.

Closing thoughts

Of course, having said all of this, we know that our users will have many clients who are doing eligible R&D in less cutting-edge areas. We always advise looking at the following when trying to find eligible R&D in your client base:

  • Look at the sector they’re operating in – is it likely to involve science or technology?
  • Does the company employ technical staff?
  • Does the company have R&D costs stated on their accounts?
  • Have the company’s project costs gone up, or have they experienced major cost overruns?
  • Has the company been awarded any grants or patents?

Keeping these questions in mind when considering their client base should help accountants and advisors identify as many eligible clients and R&D projects as possible.



Brush up on the fundamentals of the R&D tax relief scheme

Streamline your claims processes and get expert advice on the R&D tax relief scheme.

Download your copy of our eBook.WhisperClaims ebook

 

Feature of the Month | Technical Reports: What are they, and how do you generate them using WhisperClaims software?

For most of our users, the biggest benefit of using the WhisperClaims system is the time saved in technical report writing. The system is designed to take the pain out of this process.

Our users tell us that prior to using WhisperClaims technology this was a process that previously took them days or even weeks to complete, and by adopting our technology this has been compressed into a matter of hours (sometime even less than an hour!).

One of the biggest contributors to this time saving is the ability to generate robust technical reports at the click of a button – we refer to this internally as our “wow moment” in customer demos – it’s the time when a prospects jaw drops and they realise the full benefits of using our system!

It’s also the feature of the software that we’re most proud of!

However, before we get into the details of how this works, let’s take a moment to talk about what technical reports are and why they’re needed.

What is an R&D tax relief technical report?

The aim of a technical report or technical narrative is to convince HMRC that the R&D tax relief claim is valid and answer any initial questions they might have about the claim. A good technical report manages to do all of this concisely and without introducing any red flags!

Th technical report needs to cover all of the key things that HMRC is interested in when assessing an R&D tax relief claim:

  • Which areas of science or technology was the company operating in?
  • What technical advances did the company seek to make during the claim period?
  • What technical difficulties did it meet along the way?
  • Did the company use competent professionals to carry out the work?

What do I do with the technical report?

The technical report is submitted to HMRC alongside the relevant corporation tax return. You can find out more about this process in a previous blog, but in essence it’s pretty simple – you can either upload the report to your tax filling software, or email to HMRC.

How does report generation in WhisperClaims work?

Report generation in WhisperClaims is remarkably straightforward – of course, by the time our users come to generate the report they’ve already done the hard part and entered all of the information about the claim!

Once you’ve entered and reviewed all of the claim information, report generation couldn’t be simpler – all you have to do is finalise the claim, which locks down the answers and enables the system to accurately produce the report. To access the report, you’re taken through the paywall, then it’s a simple matter of downloading. It couldn’t be easier, or indeed faster – from clicking ‘Finalise’ to reading the report is a matter of seconds!

Identifying eligible clients in Dentistry

Something we hear time and again from our clients is that they struggle to identify clients in their client base who would be eligible to claim R&D tax relief. So, in a new blog series, we’ll be digging into some less obvious sectors and discussing what to look for when assessing eligibility!

In the next part of this series, we’re looking at dentistry. In a change from our previous subjects, this is an area in which the level of R&D is often widely overestimated. In this blog we’ll attempt to explain why this is, and highlight the areas that are worth focussing on with your dentistry clients.

What to avoid

As with our previous subjects, it’s good to start out with an understanding of the types of dentistry practices and companies that don’t do any eligible work. In this sector, unfortunately, the answer to this is a whole lot of them!

The first thing to state here is that the practice of dentistry, although technical and highly skilled, does not constitute R&D on its own. This means that the vast majority of dental practices, who use established processes and techniques to treat patients, are very unlikely to be able to make a claim for R&D tax relief.

This lack of eligibility even extends to more technically advanced dental practices who have bought in off-the-shelf equipment to enable them to deliver cutting-edge treatments to their patients. Simply installing technology is not R&D, and even work done to optimise this equipment for an individual practice would not qualify.

Moving on from dental practices, not even dental laboratories are guaranteed to be doing eligible work. Labs that focus entirely on delivering standard services to dental practices will almost certainly not be eligible to make a claim, even though their staff wear white coats every day!

What to look for

Having said all of that, there are dental practices and laboratories that spend time and money on very eligible work. Here are a few examples of the kind of things to look out for.

Development of new treatments and techniques

Development of new treatments and processes in dentistry is an ongoing activity in certain practices and laboratories. The key thing here is that the treatment or technique requires advances to be made in an area of science, which could be anything from chemistry to software science. For example, the use of diode lasers to detect soft spots in tooth enamel, and thus cavities, required the development of appropriate laser technology alongside extensive clinical trials to prove that the technique worked better than previous methods. All of this development work would qualify for R&D tax relief.

Advances in 3D scanning and printing

One of the biggest advances in dentistry recently has been the introduction of 3D scanning and printing to increase the accuracy and speed of production of a whole range of dental appliances and treatments. Although the basis of these technologies is well established, there is still a great deal of scope for dentistry companies to be carrying out eligible work in this area.

Companies working, for example, to increase the accuracy of measurements made using 3D scanning through the integration of this technology with, for example, microscopy technologies in ways that require advances to be made would have a good case for claiming R&D tax relief. As long as these companies are making advances to the industry as a whole and are pushing these technologies beyond the manufacturers expectations, this can be a rich seam to mine.

Advanced materials

In many areas of dentistry, from the production of dentures and appliances to the bonding of fixes to chipped teeth, a lot of research time is spent on researching and developing new materials. This is complicated by the need for all of these materials to be non-toxic, hardwearing and resistant to the particular environment of the human mouth.

Dental laboratories working in this area, focussed on making advances in materials science and chemistry, will probably have some eligibility for R&D tax relief. For example, the development of longer-lasting bonding materials that can be colour matched to an individual’s remining teeth has vastly improved the ability of dentists to seamlessly repair chipped teeth. In addition, materials for use in 3D printing of dental appliance require a great deal of R&D, due to the need for these materials to meet the above requirements as well as being suitable for use in a 3D printer.

Clinical trials

A final thing to remember is where a dental lab or practice embarks on large-scale clinical trials to validate a new treatment, there will almost certainly be eligible R&D. This kind of structured trial will, by definition, generate new knowledge in an area of science or technology, and should incorporate an advance in medical or dental science.



Brush up on the fundamentals of the R&D tax relief scheme

Streamline your claims processes and get expert advice on the R&D tax relief scheme.

Download your copy of our eBook.WhisperClaims ebook

Identifying eligible clients in Textile Manufacturing

Something we hear time and again from our clients is that they struggle to identify clients in their client base who would be eligible to claim R&D tax relief. So, in a new blog series, we’ll be digging into some less obvious sectors and discussing what to look for when assessing eligibility!

In the latest of this series, we’re looking at textile manufacturing. As with our previous subjects, the level of eligible R&D to be found in this area is misunderstood, and very often underestimated. If you know what you’re looking for, this can be a very productive area to focus on.

What to avoid

As with our previous subjects, it’s worth taking the time to first think about the types of textile companies that don’t do any eligible work. As with any manufacturing company, textile manufacturers that focus entirely on producing standard ‘fashion’ fabrics almost certainly won’t have any eligibility. Their R&D and new product development is often focussed on aesthetic effects without any real technical challenges being encountered.

In a similar vein, there are many textile companies in the UK that buy in their textiles and focus on processing this for various applications. Where this processing can be done using tried and tested techniques, you won’t find any eligibility. This applies even where, for example, a company buys in off-the-shelf products such as dyes and fabric coatings and applies them in new combinations – if these products are being used as the dye or coating manufacturer intended, then there’s unlikely to be any kind of technical advance.

Ok, so what should I look for?

So, now that we know what ineligible clothing R&D work looks like, what areas should you be focussing on?

Chemical or topical treatments

Companies developing new, high-performance coatings and topical treatments are often required to make advances in chemical science in order to achieve their aims. This can include fire retardant coatings, waterproofing or even radiation protection, and is often a response to new regulatory requirements. As long as the development of these coatings do require an advance, and the company encountered technical uncertainty along the way, then there’s a good chance of an eligible claim.

Development of new woven and non-woven fabrics

In general, the development of new fabrics, where the innovation lies in the colour, pattern or feel of the fabric, is not eligible for R&D tax relief because the desired outcome can be achieved using standard techniques. However, cutting-edge textile companies will often be working on fabrics that use non-standard or newly developed raw materials. Where this requires R&D to be done into manufacturing techniques in order to achieve the desired outcome there can be scope for making a claim for R&D tax relief.

Incorporating technology into textiles

At the very cutting edge of textile development, companies are working to incorporate advanced technologies into fabrics. For example, nanotechnology can be used to make fabrics spill resistant or reduce static without compromising the aesthetics of the materials. In addition, the increased use of biodynamic sensors and electronics in clothing has required a great deal of R&D, not least into how to make these elements resistant to wear and washing. The development of advanced textiles like these will almost certainly involve eligible R&D.

Recycled materials

Another area of focus for textile manufacturers is the incorporation of recycled materials into textiles. The increasing awareness of the environmental impact of the clothing and textile industries has led to pressure on these companies to reduce their use of more polluting raw materials and develop new materials from waste products, such as plastic bottles. Where this work requires advances to be made in chemistry and materials science there will almost certainly be eligibility for R&D tax relief.



Brush up on the fundamentals of the R&D tax relief scheme

Streamline your claims processes and get expert advice on the R&D tax relief scheme.

Download your copy of our eBook.WhisperClaims ebook

Feature of the Month | Collaborators: What are they, and why might you want to invite them to an R&D claim?

While we often joke that there are as many different ways to use WhisperClaims software in an R&D tax relief claim process as we have customers, there are definitely two distinct types of users—those that use the collaboration feature, and those that don’t.

Before we get into the whys and wherefores of inviting collaborators, we should probably establish what we mean by collaborators, and how this feature of the software works.

What are Collaborators?

Put simply, collaborators are anyone who could or should have input into a tax claim. The most obvious examples are the staff of the claimant company—from the technical lead to the financial director, they will have information that you need to pull together a robust R&D claim. Beyond this, subcontractors that worked on the projects might have insights into the technical challenges, or outsourced payroll staff may be able to contribute to the cost gathering.

How are collaborators managed in WhisperClaims?

Collaborators can be added to a claim at any point through the claim interface. You have the option of giving them access to just the questions about the projects, or both the projects and the costs questions, meaning you can keep sensitive financial information private. The collaborators set up their own log in, and can access the claim as often as necessary until you’re happy that you’ve gathered all of the information you need to make the claim.

Ok, but why would I want to invite collaborators to a claim?

Well, as the name suggests, it’s a great way to collaborate with your client on the preparation of their R&D tax claim. This way you both have access to the same information, and any mistakes or misunderstandings can be ironed out before the report is finalised. From experience, we know that the most difficult and time-consuming part of the process is the to-ing and fro-ing about the finer points of the projects and costs, so working collaboratively like this can go a long way towards reducing the time it takes to agree a claim with your client. Finally, it brings your client into the process, giving them a sense of involvement and ownership of the claim.

Identifying eligible clients in Construction

Something we hear time and again from our clients is that they struggle to identify clients in their client base who would be eligible to claim R&D tax relief. So, in a new blog series, we’ll be digging into some less obvious sectors and discussing what to look for when assessing eligibility!

In the next part of this series, we’re looking at construction. As with some of our previous subjects, the level of eligible R&D to be found in this area is misunderstood. In fact, experts are often poles apart, with some stating that there’s no eligibility at all in construction, and others preparing claims for anything and everything!

In fact, construction definitely lands more on the ineligible end of the spectrum – most construction can be carried out without ever doing eligible R&D. However, there are a few projects within some construction that constitute qualifying work.

What to avoid

As with our previous subjects, it’s good to start out with an understanding of the types of construction companies that don’t do any eligible work. Within construction, the first thing to include in this section are the associated trades. The chances of plumbers, electricians, roofers, plasterers and the like having any eligible R&D to claim for is vanishingly small – they’re carrying out routine tasks using well established processes and procedures.

Moving up the scale, construction companies focussed on the building of domestic housing developments are also unlikely to be much eligible R&D. The design and construction of such houses has become almost completely standardised, with similar houses being built throughout estates and over many different sites. Where eligible R&D is required in these circumstances, it’s also worth noting that any technical uncertainties will almost certainly have been resolved during the building of the first prototype house, so none of the costs of subsequent house builds would be eligible.

Construction companies that focus on the building of commercial buildings are more likely to have carried out eligible work, as by their nature these commercial buildings are more likely to have specialised requirements. However, these requirements can often me met using standard techniques without any R&D. In addition, the challenges in this area can often be around budgets, timing or logistics, and can usually be resolved without the need to make advances in an area of science or technology.

Regulatory and environmental requirements

Having said all of that, there are some interesting areas within construction that might yield eligible claims. The first is work done to comply with changing regulatory and environmental requirements. Within construction, especially of commercial buildings, developers are required to comply with a huge amount of safety and environmental regulations, which are aften updated. Where a company carried out technical R&D to develop new products, processes or services that enable compliance, this work might be eligible for tax relief.

Integrating new technologies

Often, working to make buildings more thermally efficient, for example, can involve integrating new untested technologies into a construction project. Where this is a straightforward process the company would be unable to claim R&D tax relief. However, companies working with cutting edge technologies that require them to make advances in, for example, engineering or materials science to be able to successfully install the technologies or achieve the required outcome, would be able to make a claim.

Modular Construction

Construction companies working in non-traditional areas of construction, such as modular design and building, are more likely to be carrying out eligible work. For example, the development of modular building materials, products and processes is likely to involve advances in electrical engineering and civil engineering, and could be eligible for R&D tax relief.

Supply chain

As with a lot of the less eligible sectors we’ve discussed, the supply chain to the construction industry is far more likely to yield eligible claims than the industry itself. For example, developers of advanced thermal cladding likely to be making advances in materials science, and software companies developing advanced Building Information Management could be advancing software science. Overall, this can be a much more productive area to focus on than looking at ‘pure’ construction companies.



Brush up on the fundamentals of the R&D tax relief scheme

Streamline your claims processes and get expert advice on the R&D tax relief scheme.

Download your copy of our eBook.WhisperClaims ebook

Identifying eligible clients in hospitality

Something we hear time and again from our clients is that they struggle to identify clients in their client base who would be eligible to claim R&D tax relief. So, in a new blog series, we’ll be digging into some less obvious sectors and discussing what to look for when assessing eligibility!

In the fourth part of this series, we’re looking at hospitality. In a change from our previous subjects, this is an area in which you’re very unlikely to find eligible R&D. In this blog we’ll attempt to explain why this is, and highlight the few areas that are worth focussing on with your hospitality clients.

What to avoid

As with our previous subjects, it’s good to start out with an understanding of the types of hospitality companies that don’t do any eligible work. In this sector, unfortunately, the answer to this is most of them!

The main thing to avoid here is small: usually single or small groups of hotels, restaurants and other hospitality venues. At this smaller scale, it’s highly unlikely that there will be any eligible work going on, mostly because there’s nothing technical or scientific about the core business, and no urgent need to make scientific or technical advances to improve their services.

Moving up the scale, larger hospitality groups are likely to undertake regular, large projects to improve their venues and service offering. However, these are often focused on commercial or logistical innovations, and again wouldn’t require the company to make scientific or technical advances.

At this point, you’re probably wondering if it’s worth thinking about your hospitality clients at all in the context of R&D, and you’d be right—you’re unlikely to find anything. That said, there are a few narrow areas worth looking at.

Software development projects

Automation of various functions—from hotel check-ins to food-ordering in restaurants—is a hot topic in hospitality at the moment, and will require advances to be made in software science. However, for individual hospitality companies to be able to claim for this type of work, they’ll have had to arrange it in one of two ways:

  • The first option is to have hired in-house software developers who are able to build the required software and identify where the advances and technical uncertainties lie. This would lead to a robust and straightforward claim for the hospitality company.
  • The second, and more common option, is that the hospitality company subcontracts the development work to a third-party software developer. In this situation, the hospitality company would only be able to claim if they know upfront that their work requires advances to be made in software science, and the contract is explicit about this need for R&D.

Food and restaurants

As we’ve discussed previously, recipe development and food production at the restaurant kitchen scale is unlikely to be eligible; there’s just little scope to be making any kind of advance in food science. The one exception to this is at the very cutting edge of restaurant innovation, where chefs are working in the area of, for example, molecular gastronomy. In restaurants like these, they go far beyond any established processes and techniques, and often develop their own production machinery. These new techniques and ways of producing food can require advances to be made in food science, chemistry and engineering, and in these cases would qualify for R&D tax relief.

Supply chain

As with a lot of the less eligible sectors we’ve discussed, the supply chain to the hospitality industry is far more likely to yield eligible claims than the industry itself. For example, developers of point of sale devices or apps to make the checking-in process in hotels easier are likely to be making advances in software science, and food manufacturers producing goods at a large scale to supply into cafes could be advancing food science. Even the laundries working to supply clean linen to hotels could have eligibility, for example in improving cleaning products to lessen the environmental impact, or in tracking systems to enable efficient cleaning and delivery of thousands of items.

Overall, for us hospitality is a ‘no, but—’ industry when it comes to R&D tax relief, so it pays to know what you’re looking for in this sea of ineligible companies.


Brush up on the fundamentals of the R&D tax relief scheme

Streamline your claims processes and get expert advice on the R&D tax relief scheme.

Download your copy of our eBook.WhisperClaims ebook

How do grants affect R&D tax relief in the COVID-19 era?

The interaction between grants and R&D tax relief is always a bit tricky to work out, and is something we’ve covered at length before. We’ve also written about how all of the COVID-related financial support, including furlough payments, given to companies affects a claim for R&D tax relief. However, in this era of virus-related uncertainties, we thought it would be helpful to bring all of this together and discuss how advisors can navigate these tricky waters for their clients.

The Basics

Grants & R&D

A quick reminder: the reason that grants and SME R&D tax relief interact is down to European Commission rules around State Aid. Because the SME R&D tax relief scheme is so generous, it is classed as a notified state aid. All other grants can be divided in to two types:

Notified State Aid, and everything else (including de minimis State Aid). To help prevent Governments over-subsidising their own companies, there is a rule that no project within Europe can be in receipt of more than one form of Notified State Aid.

Taking these facts together with the guidance around R&D tax relief, we come up with three golden rules:

  • You can’t use more than one form of Notified State Aid on a project. This means that if your project has already received Notified State Aid, you can’t apply for R&D tax credits under the SME scheme.
  • You can claim for Notified State Aid-funded projects through the RDEC scheme. If you are an SME with a Notified State Aid-funded R&D project, you can normally claim relief under RDEC – which unlike the SME scheme is not a form of Notified State Aid. It doesn’t matter what percentage of the project has been funded by Notified State Aid – all of its expenditure is affected!
  • Non-notified State Aid grants split a project into SME & RDEC components. If you’re an SME with a project funded by something other than notified state aid, only the amount of the subsidy has to be routed through RDEC and the rest of the project cost can be claim through the SME scheme.

CBILS & BBLS

Both the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS) have been classified as Notified State Aid. This means that:

  • If you’ve been claiming SME R&D tax credits, you won’t be allowed to use CBILS/BBLS finance to support any project that has received SME R&D tax relief.
  • If you haven’t been claiming for SME R&D tax credits yet, any project that you support using CBILS/BBLS won’t be eligible for SME R&D tax credits, either now or at any point in the future.

CJRS

While the Coronavirus Job Retention Scheme (CJRS) is not classified as any type of State Aid, it nonetheless could have a big impact on R&D claims. Essentially, HMRC will not consider furloughed workers to have been directly or actively engaged in R&D during the time they were on furlough, and so this time, and the furlough payments, will have to be excluded from future R&D claims.

What does this all mean?

Well, what this really means is that R&D claims for companies that have received grants and/or any form of Coronavirus financial support are going to be more complicated for at least the next couple of years. What do we mean by complicated? Here’s an example scenario for you to chew over:

TechCompany A, an SME, has been working on an innovation project for the past couple of years, for which it has received grant funding from Innovate UK. It also carries out eligible R&D at its own expense. When the COVID lockdown was announced, the company was forced to furlough some of its project staff, and took out a bounce-back loan to cover some of its ongoing costs. What do they need to consider, and what will their FY2020 R&D tax claim look like?

Well, first of all they’ll need to make sure that they don’t use any of the BBLS funding to pay for the grant funded project, so as not to fall foul of State Aid rules. They may also want to look at extending their grant if they’ve fallen behind due to furlough.

In terms of the R&D claim, what they will need to do is:

  • Look at which project staff were furloughed, and exclude any furlough (and top up salary) payments made to those staff while they were on furlough from the R&D claim
  • Separate out eligible spending on the grant funded project and route that through RDEC
  • Assess which, if any, other R&D projects were funded by the bounce back loan
  • For the projects that did receive BBLS funding, route the eligible spend through RDEC
  • For the remaining projects, route the eligible spend through the SME scheme

Phew! If this looks complicated, it’s because it is—the COVID-19 situation has injected an extra layer of complexity into what was already a tricky area of tax.


Brush up on the fundamentals of the R&D tax relief scheme

Streamline your claims processes and get expert advice on the R&D tax relief scheme.

Download your copy of our eBook.WhisperClaims ebook

Identifying eligible clients in clothing manufacturing

Something we hear time and again from our clients is that they struggle to identify clients in their client base who would be eligible to claim R&D tax relief. So, in a new blog series, we’ll be digging into some less obvious sectors and discussing what to look for when assessing eligibility!

In the third part of this series, we’re looking at clothing manufacture. As with our previous subjects, the level of eligible R&D to be found in this area is misunderstood, and very often underestimated. If you know what you’re looking for, this can be a very productive area to focus on.

What to avoid

As with our previous subjects, it’s worth taking the time to first think about the types of clothing companies that don’t do any eligible work. The number one thing to avoid is companies that just produce clothes in response to changing fashions using established techniques – no matter how quickly they work to produce cheaper versions of catwalk fashions, there’s almost certainly no eligible R&D involved.

In a similar vein, overcoming logistical challenges in the production of these ‘fast-fashion’ items, such as sourcing suitable fabrics and identifying which factories can manufacture the items at the desired price and volumes, would not constitute eligible R&D. Essentially, this type of work does not advance any area of science or technology, so it’s out!

At the other end of the scale, clothing manufacturers that produce bespoke or couture items are no more likely to be doing eligible work – just because an item is a one-off or handmade does not mean that it requires any amount of R&D to be carried out.

Finally, in things to avoid, it’s worthwhile thinking about HMRC’s rules about using off-the-shelf materials to make new products. In a lot of clothing companies, they take off-the-shelf components – fabric, zips, buttons etc – and combine these into new and different items. HMRC are very clear on this not being qualifying work.

Ok, so what should I look for?

So, now that we know what ineligible clothing R&D work looks like, what areas should you be focussing on?

Responding to new legislative requirements

In common with the food and drink industry, there is a huge amount of legislation that textile manufacturers have to consider, especially around the requirements for flame resistance or fire retardancy. For clothing manufacturers attempting to make clothing for specialist applications, the need to make sure that their clothing complies with these legislations can involve eligible R&D.

Production of clothing for specialist applications

Following on from the above, the production of personal protective equipment and specialist clothing can be a great place to look for eligible R&D. Manufacturers of medical-grade clothing, or protective suits for fire crews or workers in nuclear power stations face a host of challenges that can only be overcome through extensive R&D work. For example, producing suits that shield the wearer from high levels of radiation whilst allowing a full range of movement is very difficult, and requires advances to be made in chemistry and engineering.

New manufacturing techniques

In your more average clothing manufacturer, there may be eligible R&D in the development of new manufacturing techniques. For example, the recent developments in laser stitching techniques has enables materials to be irreversibly fused in a quick and efficient manner. The development of this technique required advances to be made in laser physics, and would typically have qualified for R&D tax relief.

Tracking and delivery processes

Clothing manufacturers might be producing hundreds of different clothing items for multiple retailers simultaneously and tracking each individual item can be incredibly challenging. A lot of these manufacturers have in-house teams of software developers working on this complex software and hardware challenge, making advances, for example, in the area of radio-frequency tracking and big data processing. Working to identify which of your clothing clients has invested time and money into these types of software development projects will often pay off!



Brush up on the fundamentals of the R&D tax relief scheme

Streamline your claims processes and get expert advice on the R&D tax relief scheme.

Download your copy of our eBook.WhisperClaims ebook

Identifying eligible clients in Food & Drink

Something we hear time and again from our clients is that they struggle to identify clients in their client base who would be eligible to claim R&D tax relief. So, in a new blog series, we’ll be digging into some less obvious sectors and discussing what to look for when assessing eligibility!

In the second part of this series, we’re looking at food and drink manufacturing. As with our previous subject, agriculture, the level of eligible R&D to be found in this area is misunderstood. In fact, experts are often poles apart, with some stating that there’s no eligibility at all in food and drink, and others preparing claims for anything and everything!

As with most things, the answer is somewhere in the middle – some food and drink manufacturing can be carried out without ever doing eligible R&D, whereas other companies end up doing a huge amount of qualifying work.

What to avoid

As with agriculture, it’s worth taking the time to first think about the types of food and manufacturing companies that don’t do any eligible work. As a first pass, if you have clients in this sector that produce traditional foodstuffs, for example bread, using tried and tested techniques and without investing time and money in trying to improve their recipes or processes, they’re almost certainly not doing eligible work, so you can remove these from your list.

Beyond this, it’s worth thinking about the scale of the operation, and whether the work they are doing could be done easily in a domestic kitchen. For example, consider recipe development in restaurants – while they are potentially developing new and cutting-edge dishes, they’re unlikely to be doing anything that advances food science, and most of what they do could be done by a skilled home chef.

In fact, in food and drink manufacture, new product development doesn’t often qualify as eligible work, as most of the time the company can use existing knowledge and processes, with some tweaks, to produce and scale these products.

Another ineligible strand of work you often see in food and drink is companies diversifying and starting to produce a range of products that they’ve never offered before, but that are not new to the industry as a whole. Good examples of this might be breweries branching out into producing gin, or cake manufacturers moving into bread production – much as this might be new to the individual company, it’s not an advance to the industry as a whole.

Ok, so what should I look for?

So, now that we know what ineligible food and drink R&D work looks like, what areas should you be focussing on?

Responding to new legislative requirements

Within the food and drink industry, there is a huge amount of legislation that manufacturers are required to comply with, and that changes regularly. Even where there is no legislation, government advice and taxation regimes can affect food and drink manufacturers. For example, increased tax on products that are high in sugar has led to a huge amount of research into sugar alternatives and how to reduce sugar levels without detrimentally affecting the organoleptic properties of these products. Much of this work will have elements that are eligible for R&D tax relief.

Scaling and commercial production

As stated above, new recipe development doesn’t often involve making an advance in science or technology. However, scaling these recipes up to commercial production levels can be difficult, and often involves elements of eligible R&D. Companies that work to produce food and drink on a larger scale, especially where this hasn’t been achieved previously in the industry, are often doing eligible work.

Changes in fashion

As well as legislative changes, food and drink companies are required to respond to changes in consumer requirements. For example, the increase in people following vegan or plant-based lifestyles has led to a huge increase in the demand for vegan alternatives to standard products. Where this requires advances to be made in food science, for example in the production of convincing meat alternatives, you’re likely to find eligible work.

Supply Chain Companies

In common with agriculture, the supply chain to the food and drink industry can be where you are most likely to find eligible work. From engineering companies developing advanced food processing machinery to chemistry companies producing compliant food additives to comply with new legislation, this can be a very rich seam to tap.


Brush up on the fundamentals of the R&D tax relief scheme

Streamline your claims processes and get expert advice on the R&D tax relief scheme.

Download your copy of our eBook.WhisperClaims ebook

WhisperClaims’ take on the Research and Development Tax Credit Statistics 2020

It’s that time again—the Research and Development Tax Credit Statistics have been published, and my inner stats nerd is in full flow!

First of all, the standard points—use of the scheme continues to increase, with 17% more claims submitted in 2017-18 compared to 2016-17 and the amount of support given increasing to over £5.1bn, a 15% year-on-year increase. This is great news for UK companies, with more and more companies accessing support for their R&D activities—15,750 companies claimed for the first time in 2017-18, indicating that awareness of the scheme continues to grow every year.

However, none of that is really news—the trends have been stable for several years now, and the first page of HMRC’s report gives a great summary of these points. What I’m more interested in is using stats to attempt to form a more nuanced picture of the types of companies that are making claims.

We get a lot of questions from our users about how to identify eligible companies amongst their clients, and the easiest thing to do is paint them a picture of the most likely candidates. So, if I twist statistics a little to do my bidding, I could take the modal values from this year’s stats to describe the most common claimants. This means that I could tell our clients to look out for manufacturing companies in London that were formed less than five years ago, making claims of less that £5k tax benefit—that’s the most likely SME claimant according to the stats. However, this information doesn’t line up with my experience of making claims, and is probably not entirely helpful to any of our clients!

Right, how else can we do this? Well, rather than taking the mode, we could look at the median to get an idea of what an ’everyman’ claimant looks like. Under the SME scheme, our everyman claimant is a company of 15-20 years standing, operating in Arts, Entertainment and Recreation, based in Yorkshire and the Humber and making claims of £20-25k in tax benefit. They’re really quite different to our RDEC everyman, who are still based in Yorkshire and the Humber and 15-20 years old, but these companies work in Electricity, Gas, Steam and Air Conditioning and make claims of £30-40k. Hmm, this still doesn’t sound particularly like any clients I’ve ever worked with!

So, what’s the point of this, other than an excuse to spend an afternoon juggling numbers and spreadsheets? Really, it’s that you can’t rely on statistics and basic facts to identify eligible clients—if you do you’ll miss a huge number of opportunities. What’s always missing from any analysis like this is the personal touch—advisors that know their clients well can learn to spot eligibility in the unlikeliest of places, even if that’s the 15 companies registered in the Channels Islands, or the five working in Public Administration, Defence & Social Services that that made claims for SME R&D tax relief in 2018/19.

And this is what we’re all about at WhisperClaims—enabling our clients to put their in-depth information about their clients to good use in making strong, robust R&D claims. This helps strengthen their relationships with their clients, as well as boosting their bottom line—a win/win!

As part of this, we’re expanding our range of eligibility related content to help you more easily and accurately identify R&D. Our other articles and the WhisperClaims ebook cover the bulk of written information, while our webinars directly invite you into the conversation, person-to-person.

For more examples, visit our website and subscribe to our mailing list to stay updated on any new events and resources we have to share with you.

 


Brush up on the fundamentals of the R&D tax relief scheme

Streamline your claims processes and get expert advice on the R&D tax relief scheme.

Download your copy of our eBook.WhisperClaims ebook

Guest Post | Alan Woods: How to submit a claim for R&D tax relief

Here at WhisperClaims, we get many questions about what to do with the eligible expenditure figures that are contained within our reports, and how best to submit claims for R&D tax relief. Now, we’re not accountants, and as such we’re neither qualified nor allowed to offer that kind of advice. Happily, though, we do know some really good accountants with lots of experience of this kind of tax!

To help support accountants making R&D tax claims, we asked Alan Woods of Woods Squared to outline his process and answer some of the more common questions we get asked. Take it away, Alan!

What’s your process for claiming R&D tax relief?

Preparation and submission of an R&D tax relief claim is a five-step process for us:

  1. Calculate the eligible expenditure and prepare a supporting report
    We use WhisperClaims to help us prepare the supporting documents and calculate the eligible expenditure.
  2. Incorporate the R&D tax figures in the tax computations;
    This can be done using the R&D feature in your tax filing software. We enter the value of the expenditure and then run a draft computation. If this results in a tax liability, we check and finalise the tax computations and move on to step three. If it creates a loss, we assess how best to utilise this, and then tell the software whether we want to claim a tax credit or carry the losses forward or backwards before moving on.
  3. Include the claim in the CT600;
    Again, this is done semi-automatically by our tax filing software – we follow the steps in the software and then check that everything is correct. Whichever software you use, you’ll be able to find instructions on how to do this in the help and support section.
  4. Attach the supporting documents and submit the CT600;
    Once we’re happy with the CT600, we attach any supporting documentation and send it off to HMRC.
  5. Wait for payment!

How should I submit the supporting documentation?

While there are several ways to submit the documents, including emailing them directly to HMRC, we simply attach them to the CT600 submission via our tax filing software. We aim to include R&D on original submission if at all possible, so with these we’ll attach the accounts and the supporting documents. Where we have to amend the CT600, we just attach the supporting documents to the amended submission – you don’t need to reattach the accounts at this stage.

The main advantage of this for us is that we get an electronic acknowledgement of submission from HMRC and can be sure that the documents won’t get lost or incorrectly assigned!

Do I need to chase HMRC about claims?

At the moment, HMRC are paying out claims fairly quickly – we’ve had a few recently that have been paid out within a week, and most are paid out within 20-28 days. The only claims we find we have to chase HMRC about are those where we’ve carried losses backwards – these tend to take a lot longer and often need a push.

Quick tip – we prefer chatting to HMRC through their webchat feature. You tend to get a quick response, and, more importantly, you can print off and save the transcript at the end for audit purposes.

Does HMRC pay interest on tax rebates created by R&D tax claims?

Yes! As with any situation where a company has overpaid tax, HMRC will pay interest at the official rate on any repayments of tax due after the submission of an R&D tax claim.

Can I do the submission without tax filing software?

Yes, but it’s a little more difficult. HMRC have provided a step-by-step guide on how to include R&D costs in a CT600, which guides you through the whole process. You can also use HMRC’s online tools.

 


Brush up on the fundamentals of the R&D tax relief scheme

Streamline your claims processes and get expert advice on the R&D tax relief scheme.

Download your copy of our eBook.WhisperClaims ebook

Identifying eligible clients in Farming and Agriculture

Something we hear time and again from our clients is that they struggle to identify clients in their client base who would be eligible to claim R&D tax relief. So, in a new blog series, we’ll be digging into some less obvious sectors and discussing what to look for when assessing eligibility!

To kick this off, we’re looking at agriculture and farming. These are industries where most people wouldn’t expect to find cutting-edge R&D, and to some extent they’re right – the majority of farms aren’t doing qualifying work. However, if you know what to look for, this can be a rich seam to mine.

What to avoid

Having said that, it’s worth taking the time to think about what a non-eligible farming or agriculture business looks like. Farming and agriculture businesses that produce food using established techniques, without any attempt to improve through technical or scientific means, are definitely out!

Beyond this, it gets a little more difficult. A lots of crop farmers, for example, buy in new seeds from their supplier and have to spend time optimising the types and levels of irrigation and fertilisation to maximise their crop yields. Although this type of work can be difficult and expensive, it’s unlikely to be eligible because any knowledge gained would be a company-specific rather than industry-wide advance in science or technology. The same goes for the introduction of new technology, such as crop-inspection drones. Using off-the-shelf technology for the purpose for which it is designed does not qualify as eligible work. 

Ok, so what should I look for?

So, now that we know what ineligible farming work looks like, what areas should you be focussing on?

Collaborative projects

Developers of new agricultural technology will often partner with larger agricultural organisations to gain knowledge and enable more rigorous testing. If you know that your agricultural client is working on collaborative projects with technology companies, they’re likely to have an eligible claim, and are definitely worth targeting!

Larger Companies or Co-operatives

As we’ve established, smaller individual farms are less unlikely to be carrying out eligible work. However, as the farming companies get bigger, or form part of co-operatives, you’re far more likely to find eligible work. For example, these types of organisations will often have the skills and funding necessary to embark on in-house breeding programmes, or develop technologically advanced processing techniques and machinery, that would constitute an industry-wide advance. 

Environmental Improvements

Hot topics in farming at the moment centre around environmental sustainability, such as improvements in disease and pest control, increased water efficiency, improved soil management and working to meet new regulatory requirements. Farming clients working in these areas are more likely to have qualifying work, as long as they are seeking to advance the industry as a whole. 

Supply Chain Companies

Saving the best for last, our top tip when looking for R&D in farming and agricultural is to focus on the supply chain to the industry. Whether it’s makers of agricultural machinery, plant and animal breeders or even producers of medications and supplements for livestock, these companies are far more likely to be doing cutting-edge, eligible R&D than individual farms. For example, we stated above that introducing drone technology to a farm would not be eligible for R&D tax relief, which is true. However, developing improved drones, or writing advanced software programmes to enable the assessment of crop health and yield from the air would absolutely involve eligible R&D. 

 


Brush up on the fundamentals of the R&D tax relief scheme

Streamline your claims processes and get expert advice on the R&D tax relief scheme.

Download your copy of our eBook.WhisperClaims ebook

Update: Furloughed workers and R&D tax relief

Earlier this month, HMRC published guidance on how the Coronavirus Job Retention Scheme (CJRS) or furloughed workers scheme, would be treated for the purposes of R&D tax relief. The good news for us is that the advice we’ve been giving our clients and had published way back in July was right! This advice is reproduced below, but the key takeaway is that HMRC will not consider furloughed workers to have been directly or actively engaged in R&D during the time they were on furlough, and so this time, and the furlough payments, will have to be excluded from future R&D claims.

As a reminder, the CJRS was launched in March 2020, and forms the cornerstone of the Government’s support to businesses during the Covid-19 crisis. It originally enabled employers to furlough employees and claim back 80% of the salary costs of these workers from the Government. Version two of the scheme came into force in July 2020, and allows previously furloughed employees to return to work part-time, with the Government continuing to fund to portion of time these employees are not in work.

This scheme has been well received and widely utilised, but, based on HMRC’s recently published guidance, how will the furlough scheme affect a claim for R&D tax relief?

The good news is that the furlough payments are not classified as State Aid, so won’t directly affect the ability of a company to claim SME R&D tax relief. Employees who are furloughed are also not allowed to work, so by definition cannot be doing R&D for the time that a claim is made under the CJRS.

However, what the furlough payments will do is make it a lot more complicated to calculate staff apportionments for R&D tax relief claims. To illustrate this, we’ll work through the case of Bob, a laboratory technician. He works in the R&D team at company A, and spends 80% of his time on eligible activities. He was furloughed from 1st March 2020 to 30th June 2020, and has now been asked to return to work two days a week from 1st July 2020 to 30th September. From this point he expects to return to full time work.

So, how would we work out Bob’s overall R&D apportionment for the financial year Jan-Dec 2020? Let’s look at how he will have spent his time:

  • Five months full-time work
  • Four months completely furloughed
  • Three months working 40% and furloughed 60%

Overall, Bob will spend 6.2 months, or 52% of the year at work. Of this time, 80% is eligible R&D, so his overall apportionment would be 42%. Phew!

This kind of calculation is going to be needed for thousands of workers across thousands of R&D claims over the next year or so, so we’d recommend preparing yourself and your clients now! It’s also important to realise that any company that furloughed their R&D staff, or reduced their spend on R&D as a response to the crisis will see a proportional reduction in the size of their R&D tax relief benefit, so expectation management will be key to happy clients and accurate claims.


Brush up on the fundamentals of the R&D tax relief scheme

Streamline your claims processes and get expert advice on the R&D tax relief scheme.

Download your copy of our eBook.WhisperClaims ebook

Basics of RDEC (Research and Development Expenditure Credit Scheme)

Much of what you’ll read online about R&D tax relief focuses on the SME R&D tax relief scheme, with advice about how to claim, what the benefits are and what kinds of companies can make a claim. This can mean it’s more difficult to find advice and guidance about the RDEC scheme. Here, we give you a basic starter for ten – what is the scheme, who can claim, and what are the main differences between the two schemes!

What is RDEC?

Just like the SME R&D tax relief scheme, the RDEC scheme is a UK Government tax incentive aimed at rewarding companies who undertake research and development, and was introduced in 2016 as a replacement for the Large Company R&D tax relief scheme. It is primarily designed for large companies, that is those with 500 employees or more, or that breach the limits of turnover and balance sheet assets.

As of 2018, the most recent year for which R&D stats are available, only 13% of claims for R&D tax relief were made through the RDEC scheme. However, these claims represented a whopping 48% of the value of total R&D tax relief, with the average RDEC claimant receiving over £300,000 in tax benefit. Even for larger companies, that saving is not to be sniffed at!

How does RDEC work?

RDEC is a pretty straightforward tax relief, especially when compared to the SME scheme. Basically:

  • The RDEC tax credit is equal to 13% of a company’s eligible R&D expenditure
  • The credit is taxable at the Corporation tax rate, so the overall tax benefit is equal to just over 10.5% of qualifying expenditure
  • The credit can be shown ‘above the line’, so is visible as income in the claimant’s accounts

The eligibility criteria, including the definition of a project and what constitutes eligible work are exactly the same for RDEC as for the SME scheme.

As for the qualifying expenditure, there are a couple of key differences. Just like in the SME scheme, under the RDEC scheme a company can claim for:

  • Staff costs, including pensions and bonuses
  • Externally provided worker costs
  • Utilities costs
  • Software costs
  • Raw materials costs
  • Payments to clinical trial volunteers

However, the rules for subcontractor payments and independent research are very different:

  • For subcontractors, only payments made to certain qualifying bodies, individuals or partnerships of individuals can be included in the claim. Payments to any other type of subcontractor, including limited companies, are not allowable.
  • Large companies can also include contributions to independent research, as long as they are made to qualifying bodies, individuals or partnerships of individuals can be included in the claim.

Can SMEs claim RDEC?

In two very specific situations, yes! SMEs can claim RDEC if:

  • They have received grant funding for their R&D. In this situation, some or all of the costs will have to be routed through RDEC, depending on the type of grant received.
  • They have carried out subcontracted R&D on behalf of a Large Company. In this situation, all of the costs of the subcontracted projects have to be routed through RDEC.

The main thing to remember when claiming RDEC relief for an SME is that you must comply with the rules of the RDEC scheme by excluding certain types of subcontractor costs.

How will my client receive their credit?

Once a company has calculated its eligible expenditure, there are seven steps to claiming the tax benefit. The detail of these can be found in CTA 2009 Chapter 6A s.104N and 104O and CIRD89780. In brief, the claimant company must:

  1. Discharge any corporation tax liability for the accounting period.
  2. Adjust to reduce net of tax amount
  3. Restrict to PAYE/NIC of R&D staff
  4. Discharge any corporation tax liability for other accounting periods
  5. Surrender for group relief
  6. Offset against any other tax liabilities
  7. Remaining balance paid to the company

Can I use WhisperClaims to prepare RDEC claims?

Yes! The system has been designed to prepare claims for both schemes, and combined claims where some of the costs go through RDEC and the rest through the SME scheme. There is also a section that helps you assess whether your client is an SME for R&D tax purposes, ensuring that all claims and companies are routed correctly.


Brush up on the fundamentals of the R&D tax relief scheme

Streamline your claims processes and get expert advice on the R&D tax relief scheme.

Download your copy of our eBook.WhisperClaims ebook

 

Why don’t start-ups claim R&D tax relief?

R&D tax relief should be a no-brainer for tech start-ups – they’re usually doing loads of innovative R&D, have eligibility up to the eyeballs and, by definition, are always on the look-out for funding! So why is the up-take of R&D tax relief so low amongst these companies?

During our time in the R&D tax relief world we’ve observed that there are three very common reasons for start-ups not to claim, and none of them are that they are unaware of the scheme!

They’re too busy

they're too busy to prepare R&D tax claims image

Now, we know that busyness is probably the most common reason given by any company to avoid working on their R&D tax claim, but this is especially true for start-ups. Most founders are busy trying to find funding, develop their product, sell the product and grow their team, all whilst being unsure whether the business will even exist in three months – it’s exhausting!

For a founder to take time out of their schedule to work on an R&D tax claim they have to be completely convinced that it’ll be worth their time, which leads on to our next two points.

They’ve had grants and other funding

they've had grands and other funding image

Even now, a lot of companies (and even R&D tax providers!) think that you can’t claim R&D tax relief if you’ve received grants and other funding. This belief is especially widespread amongst start-up founders, which is unfortunate given that they are also more likely to have received grant funding!

Of course, while having received funding doesn’t prevent a company claiming R&D tax relief, it does affect the tax benefit that they can expect to receive. If a start-up founder only has one project with low costs that has been grant funded, only getting RDEC relief might not be worth their time and effort.

They don’t have enough eligible costs

they don't have enough eligible costs image

This can be the killer reason for start-ups not claiming R&D tax relief. In the early days, founder/directors are often completely unpaid or on very low salaries. In the absence of other staff salaries or significant raw materials or subcontractor costs, this can be a complete blocker to making a claim. Furthermore, as start-ups begin to become profitable, founders often decide to pay themselves through dividends, which can keep the eligible expenditure below a feasible level for making a claim.

What can I do for my start-up clients?
helping your clients image

Helping your start-up clients understand the best ways to fund their business and the implications of funding decisions, can be invaluable to their success. For example, being able to advise on the tipping point where taking a grant can actually cost a company money in the long term could help prevent your client taking on the burden of an inadvisable grant. In the same vein, looking at the tax affairs of a start-up holistically could highlight whether taking a salary or dividends is better in the long run.


Brush up on the fundamentals of the R&D tax relief scheme

Streamline your claims processes and get expert advice on the R&D tax relief scheme.

Download your copy of our eBook.WhisperClaims ebook

 

New Product Development and the R&D tax relief scheme

Within the world of R&D tax relief, there can be some confusion about what constitutes eligible work. While we’ve covered the basics before, we thought we should go into more detail about one of the thornier aspects of this: what’s the difference between New Product Development (NPD) and eligible R&D, and can NPD ever be eligible?

What is NPD?

While R&D and NPD can often be used interchangeably, there are some distinct differences between the two. New Product Development is the entire process of developing a new product, from initial market research, through design, development, manufacture, marketing, all the way to sales. It can be the creation of an entirely new product or a process to update an older product.

R&D, on the other hand, is the act of creating entirely new science, technology or technical knowledge and developing that into a saleable product. It often, but not always, constitutes the development phase of NPD. From HMRC’s point of view, only the part of R&D that involves seeking an advance in science or technology and overcoming technical uncertainty is eligible for R&D tax relief.

Can you have NPD without eligible R&D?

Yes! In fact, this is often the case. Much NPD involves tweaking or updating existing products, which can be done without any R&D whatsoever. You also see a lot of NPD that does require some R&D, but this R&D isn’t eligible. This is usually where the R&D doesn’t seek an advance or doesn’t involve significant technical challenge.

So, is NPD ever eligible for R&D tax relief?

Is NPD part of R&D?

The entire process of NPD is not eligible for R&D tax relief. However, within NPD, there could be eligible R&D, as long as this R&D meets HMRC’s eligibility criteria. The key thing when claiming for NPD projects is to focus in on the eligible elements and ensure that no costs are captured from any other phase of the project.

Can you give me some examples?

R&D, baking recipes

A great example of non-eligible NPD would be the case of a bakery switching from making cakes to making bread. Bread-making is an established science, and all of the information needed to do this is in the public domain. This means that, although bread is a new product for the bakery, there’s no eligible R&D.

R&D, window-making

Another example of NPD without eligible R&D is where the aesthetic appearance of an existing product is changed without the need for any underlying technical change. This would apply, for example, to new window designs that use established production techniques.R&D, mobile devices

Mobile phone development is a good example of NPD with elements of eligible work. Each time Apple goes through a NPD process and releases a new iPhone, it’s likely that some eligible R&D will have taken place. However, only a fraction of the cost of NPD would be eligible and would reflect how much cutting-edge technology was developed to make the new iPhone possible.

Robot Illustration

At the extreme end, new products release in cutting-edge industries, such as robotics, are likely to have involved intensive R&D efforts, and, especially where prototypes or first-in-class items have been produced, a large proportion of the NPD cost is likely to be eligible for R&D tax relief.

As with all R&D claims, the key is to stay focussed, and help your client to focus, on the underlying advances in science or technology that made the NPD possible. Ask about failures, costs overruns, prototypes and technical challenges – if they can tell you about any of these it’s likely that eligible R&D has taken place!


Brush up on the fundamentals of the R&D tax relief scheme

Streamline your claims processes and get expert advice on the R&D tax relief scheme.

Download your copy of our eBook.WhisperClaims ebook

 

Can I help my clients get their R&D tax relief sooner?

Companies are always keen to improve cashflow, and R&D tax relief can be a great way to do this – they can either bring cash in as a tax credit or reduce their tax bills. For companies struggling in the current economic climate the timing of this can be crucial, so here are our tips to making sure that your client gets their benefit as soon as possible!

Has the claim already been submitted to HMRC?

HMRC Claim SubmissionIf the claim is already with HMRC, there’s very little you can do – the claim will be processed when the claim is processed and that’s that!

Has the client’s year end passed?

Has the client's date passed?

If the client’s year-end has passed, you’ve got an opportunity to get the claim in quickly! This does, of course, depend on your client cooperating and getting all of their financial year end information to you. Informing them of the size of their potential tax benefit could be a way to incentivise them to move faster, as can making sure your R&D claim process is quick and easy for both you and your client.

Is the client part-way through their financial year?

If your client is still part-way through their financial year, you’ve got a great opportunity to make sure that they get their money faster once they hit their year-end. Encouraging your client to keep clear records about the projects they have undertaken during the claim year, alongside details of money spent on R&D, can substantially reduce the time needed to prepare a claim. You can even go as far as advising them on how to set up their financial reporting and cost codes to make this as simple as possible come year end.

Changing end-of-year for tax

However, if your client is still six months away from their year end and desperate for cash, no amount of advance claim preparation is going to help them. This is where you can deploy the final weapon in your armoury – a change of financial year end. If you know that they’ve racked up significant R&D costs over the financial year so far, it could be advantageous for them to shorten their financial claim year and make a claim now rather than waiting for months!

Of course, it’s always better to do a little of everything – make sure you have a slick and robust process for preparing claims and taking the time to make sure your clients have the processes in place to properly record their projects and spending will be beneficial to all, no matter what the economy gets up to.


Brush up on the fundamentals of the R&D tax relief scheme

Streamline your claims processes and get expert advice on the R&D tax relief scheme.

Download your copy of our eBook.WhisperClaims ebook

 

Should my client surrender losses for an R&D tax credit?

Advising your client on how best to utilise the tax benefit from an R&D tax relief claim can be complicated, especially when it comes to surrendering losses for a tax credit. Here’s our quick guide on what you need to consider.

What is an R&D tax credit?

Put simply, an R&D tax credit is a cash payment given by HMRC to loss-making companies that surrender losses generated by the R&D claim rather than carrying the losses forward to future tax years. Guidance on how to calculate a tax credit is given here, but essentially a company calculates the amount of losses they can surrender and is then given 14.5% of this amount back in cash.

Why not take the cash?

Why not take the cash?

For a loss-making company, the relatively quick and easy injection of cash received through an R&D tax credit can be a no-brainer – why on earth would they choose anything else? However, there are a few things to consider before committing to taking the cash:

Could the company carry the loss back?

Could the company carry the back the loss?

If the company made a profit and paid corporation tax in the previous tax year, it might be better for them to carry the loss back and get a rebate on tax already paid.

Is the company part of a group?

Is the company part of a group?

If the company is part of a group and another member of the group is in profit and likely to have a large corporation tax bill, it could be that using group relief rules to surrender the losses to the profitable company is more beneficial.

Is the company likely to make large profits in the near future?

Is the company likely to make large profits in the near future?
If the company knows that it is likely to make a large profit in the following tax year, carrying the losses forward to reduce future tax bills could be the best course of action.

However, if the answer to all of the questions above is no, then it’s likely that the company would benefit most from taking the R&D tax credit and enjoying the cash boost!

 

What’s the difference in benefit?

So, what does this all mean in terms of actual difference in tax benefit? Well, this depends on both the profit/loss position of the company, and whether the losses can be used as above.

Imagine Company A has £100,000 of eligible expenditure. How would its tax benefit differ for different profit/loss positions and for the scenarios given above?

Table of an example of different profit/loss positions

*Remember than in this scenario, the company has already had a tax benefit of £9,500 by reducing their taxable profits to £0.

Looking at the table above, it again seems like a no brainer to always carry the losses forward or back or utilise group relief. However, if a company is deciding between carrying losses forward or taking the tax credit, there’s one more thing to consider – would a smaller amount of cash now be worth more than a slightly larger amount of cash in the future?

Consider a fast growing start-up company investing their tax credit in more R&D, for which they expect an internal rate of return of 50%. In the first scenario above, the £11,600 tax credit is worth £17,400 in a year’s time, significantly more than the benefit of carrying the losses forward!


Brush up on the fundamentals of the R&D tax relief scheme

Streamline your claims processes and get expert advice on the R&D tax relief scheme.

Download your copy of our eBook.WhisperClaims ebook

Avoiding HMRC enquiries

An HMRC enquiry is simply the process by which HMRC ask questions or seek clarification on certain aspects of an R&D tax relief claim. It can be triggered by something in the claim itself, or may be part of wider reviews or spot-checks that HMRC carry out to assess their own processes.

Can you avoid enquiries?

Short answer: no.

Long answer: Still no. HMRC reviews every tax return and R&D tax claim to some extent, and will always choose a certain proportion for more in-depth reviews. They also enquire into R&D tax claims as part of a wider review of a company’s tax affairs, so there’s no fool-proof way of completely avoiding enquiries. Having said that, you can do a lot to keep the risk of enquiry at the baseline level. Badly put-together claims are always at a higher risk of being enquired into, especially if they contain certain triggers.

What can trigger an enquiry? 

Over our years of working in the world of R&D tax, we noticed there were a handful of things that hugely increase the risk of an enquiry:

  • Changes in claim size: Companies with a history of making claims of a certain size can find themselves facing an enquiry if the claim suddenly jumps in size. It can suggest to HMRC that the claim has been overstated, especially if there hasn’t been a similar increase in turnover or staff numbers.
  • Disproportionate claim size: Claims where the eligible expenditure is a large proportion of the turnover can look a bit wonky to HMRC. This is particularly true for manufacturing and food production companies, where HMRC would expect the vast majority of staff time and resources to be devoted to business as usual.
  • Claims from unexpected sectors: Claims made by companies that operate in sectors that would not traditionally be associated with R&D can raise eyebrows. This is especially acute for non-tech companies that have carried out software related projects.
  • Lack of alignment with accounts: It’s really important that the costs included in an R&D claim align with the published accounts for the claim period. If, for example, grants are listed in the accounts but this is not reflected in the R&D claim, this can trigger questions about whether the grants were used for R&D.
  • Doesn’t look like R&D: If HMRC read the technical narrative and can’t understand what R&D was undertaken or how it fits with the requirements of the scheme, they’ll have a lot of questions!

How do I reduce the risk?

The good news is that it’s usually easy to avoid these triggers, or mitigate the risks they introduce. First and foremost having consistent, reliable processes for pulling together R&D claims is key. This makes sure that nothing is missed and there’s a good audit trail of why certain projects and costs were included.

Once you’ve got the process worked out, it’s vital that it is well documented by the technical narrative. Ensuring that all of HMRC’s questions are answered without including any irrelevant information is key. For more information on how to write a good technical narrative read this article.

Finally, there will always be eligible claims that contain triggers that can’t be removed, so it’s important to mitigate them as much as possible. For example, if a company’s claim has quadrupled from one year to the next, include a sentence or two in the technical narrative explaining this increase. It’s good to acknowledge to HMRC that a claim might look unusual and answer any specific questions they might ask about this before they ask them.

How worried should I be about enquiries?

HMRC don’t publish statistics about enquiry rates for R&D tax claims, but we know from our own data and that of other providers that 0.5-2% of claims are enquired into. Even then, as long as you’re confident that the claims that you submit are robust and compliant, an enquiry is no reason to panic. In fact, we find that they can be a great opportunity to have a conversation with HMRC about their current interpretation of the guidance and how they like to see claims presented.

How does the WhisperClaims app help?

If you are currently using the WhisperClaims app, or thinking about it, here’s a quick recap of the features that will steer you in the right direction when it comes to preparing robust, HMRC-friendly claims through our platform.

  • A robust question-set: our questions poke into each corner of the legislation meaning you won’t forget to include important information in your client’s claim.
  • Consistent, reliable process: the app offers you a very structured and repeatable claims preparation process.
  • Clear indicators of eligibility: you’re faced with end points during the claims preparation process if your client’s project details do not meet the eligible criteria.
  • Objective decision making: the app provides you with an objective decision making tool, rather than relying on your subjectivity on whether a client may or may not be eligible.
  • Screen out borderline cases: you can use the tool to screen for borderline cases and avoid wasting time pursuing claims that may not be eligible.

Looking to create an HMRC-friendly R&D claims preparation processes?

Our ebook is loaded with helpful tips on how to streamline your claims processes and offers expert guidance on the R&D tax relief scheme. Download your copy.

WhisperClaims ebook

What should an R&D technical narrative include?

The aim of a technical narrative should be to convince HMRC that the claim is valid and answer any questions they might have about the claim, without raising any red flags

The narrative should briefly cover the key points that HMRC are interested in:

  • Which areas of science or technology was the company operating in?
  • What technical advances did the company seek to make during the claim period?
  • What technical difficulties did it meet along the way?
  • Did the company use competent professionals to carry out the work?

Once you’ve covered these four points, you’re most of the way there!

Best practice

Stick to the technical facts! HMRC don’t really care about the commercial aspects of the projects, so stick to talking about the underlying technology.

Keep it short! The best technical narratives tell HMRC exactly what they need to know and no more. The longer the report, the information HMRC have to ask questions about, and the more likely you’ll include irrelevant or commercial facts and figures.

Link to the costs. It’s always best to include some mention of how your technical narrative links to the costs included in your CT600 so that HMRC can see how the two hang together.

Leave no stone unturned… Having said that it’s best to keep the technical narrative short, we’d recommend including short, factual statements to demonstrate to HMRC that the claim has been thoroughly analysed and well put together. For example, even if a company didn’t receive any grants during the claim period, it’s still good practice to state that this is the case, indicating to HMRC that you understand the guidance and what is required.

What not to do

Include lots of padding. HMRC aren’t concerned about the qualifications of the person pulling the claim together, or reading long descriptions of the history and financial successes of the claimant company. In fact, including too much irrelevant information could make it look like you’re trying to hide something!

Focus on the commercials. As stated above, the technical narrative should be a technical narrative. Don’t include any information about the commercial aspects of the claimant company’s business unless it is directly relevant to the claim. Including too much of this kind of information can confuse the narrative and could lead HMRC to conclude that ineligible commercial costs have been included in the claim.

Blind the reader with science. Remember that you’re writing your report for an HMRC inspector who is unlikely to be an expert in the relevant field of science or technology. Make sure that the report is written in clear, easy to understand language, and avoid using too many technical terms or jargon. This way, the inspector can understand exactly why the claim is eligible without having to ask for expert help.

How does WhisperClaims help with technical narrative?

When we designed the WhisperClaims app, we started by thinking about the ideal technical narrative. We thought about what questions it would need to answer, and what it would need to cover, and then we sat down and wrote it. It wasn’t until we’d perfected the report that we started building the app!

These days, every report produced by the WhisperClaims app is a descendant of that first, ideal report. Using WhisperClaims to produce your technical narratives makes sure that all reports are robust and consistent, and directly linked to the costs that you have entered.


Brush up on your R&D claims knowledge

Our ‘Accountants’ Guide to Preparing R&D Tax Claims’ offers helpful advice on the fundamentals of the R&D tax scheme. Get your free eBook today. WhisperClaims ebook

The art of preparing R&D tax claims while working remotely

As we all adjusted to the current normal and get settled into working from home, I saw a lot of posts and blogs where people shared their beautiful home working set-ups. They had actual desks! And plants! Now, here at WhisperClaims we pride ourselves on our honesty, and I can honestly say that my home working set-up does not involve a desk of any kind. In fact, my workstation has become ‘wherever I can see the children and still type effectively!’

To illustrate this point, I thought I’d give you an insight into how I prepared WhisperClaims’ FY2020 R&D tax claim:

Day 1:

Goal: Set up my R&D claim from the sofa; Feed the kids!

5:00pm, on the sofa: Suddenly realise that the kids are quiet, and I have twenty minutes until I need to start cooking dinner.

Quickly sign in to WhisperClaims and set up our FY2020 claim.

Day 2:

Goal: Prepare an R&D claims report; Escape childcare carnage!

9:00am, in the garden: PE with Joe.

9:30am, at the kitchen table: Gasp for air. Catch up with the team over Zoom.

10:00am, at the kitchen table: Attempt to start filling out the R&D claim question set.

Image of jen badger at whisperclaims
10:03am: The bickering starts.

10:04am: Throw snacks into the living room.

10:10am: Realise the snacks are not enough. Gather broomsticks, blankets, doll, doll’s pushchair, frisbee, laptop and chair and head down to the garden.

10:15am-11:15am, in the garden: Sit shivering in garden wearing winter coat, hat and gloves. Fill out technical questions. Pull salary details from Xero and enter into the app.

11:15am – 11:30am, in the garden: The bickering starts again. Put laptop down and arrange timed laps of the lawn.

11:30am: Give up. Heave all of the stuff back into our second floor flat.

11:45 – 12:00, on the sofa: Sit awkwardly with a child on either side of me watching cartoons. Enter and apportion the rest of the R&D costs.

image of jen badger of WhisperClaims
12:00pm – 12:30pm, in the kitchen: Feed the ravenous hordes.

12:30pm – 1:00pm: Rare moment of peace while kids do crafts. Make space in amongst the chaos of craft materials on the coffee table for my laptop. Check through R&D claim, finalise and download report. Email to accountant while the going is good….

And that, my friends, was that. Half a day, two and a quarter hours of actual work, two happy-ish children and a complete R&D claim sent to our accountant – not bad at all!


Have you had your WhisperClaims demo yet?

Our fully automated, cloud-based software is capable of producing all the documentation needed to support an R&D claim – no matter where you’re located!

Image of a laptop showing the R&D tax software with a question about what areas of science and technology a in which company undertook R&D

>>> Book your demo today >>>

Or get in touch to find out more about WhisperClaims.

Avoiding red flags & common mistakes

From time to time, before switching to WhisperClaims, Accountants often approach us looking for a second opinion on R&D claims reports prepared either by themselves or another provider. It’s a good way for them to get a second opinion, which helps to mitigate against HMRC enquiries, and, it keeps us current on how the guidance is being interpreted by the industry. All very positive!

Every now and again we do come across a report that makes us wince! There are some common mistakes that we thought we’d pull together and share with you – these are major misinterpretations of the guidelines that we recommend you avoid!

1. Confusing commercial details with technical and scientific details.

A report we recently reviewed had a whole section dedicated to establishing the technical baseline for the client’s projects, which is exactly what HMRC like to see. However, this section was full of commercial details about the company and the industry, and actually undermined the claim from the beginning by establishing that the company did standard work using off-the-shelf components, which is completely ineligible!

2. Assuming that trial and error is eligible.

Reports that use the phrase ‘trial and error’ multiple times to describe the work that the company does to establish which combination of components perform best for each application, can be a problem. Trial and error is almost always ineligible. To quote CIRD81900, ‘improvements, optimisations and fine-tuning which do not materially affect the underlying science or technology do not constitute work to resolve scientific or technological uncertainty’.

3. Claiming for software installation and optimisation.

This point is more common than you might imagine – an example being a company that has decided to upgrade their CRM system and claimed work as R&D. A report we recently reviewed detailed the analysis they did of available systems before making the choice to go with an off the shelf system. If they’d done this work and then discovered that there was no available system that was technically capable of doing what they needed, they might have had a claim, but installing and optimising a standard system is not an advance in worldwide science or technology. Again, CIRD81900 states, ‘A process, material, device, product or service will not be appreciably improved if it simply brings a company into line with overall knowledge or capability in science or technology, even though it may be completely new to the company or the company’s trade.

4. Confusing commercial and technological uncertainties

Reports that list a number of ‘technical uncertainties’ including uncertainty regarding whether a project could be completed within the allocated budget. This is absolutely not a technical uncertainty by HMRC’s definition – ‘Scientific or technological uncertainty exists when knowledge of whether something is scientifically possible or technologically feasible, or how to achieve it in practice, is not readily available or deducible by a competent professional working in the field.’

5. Using ‘Red Flag’ words

Red flag words used throughout a report, including ‘fine-tuning’, ‘trial and error’, ‘optimisation’ and ‘bespoke’. The quote in section two (above) explains why the first three of these should be avoided. ‘Bespoke’ is one we’ve learned is a red flag from our experience of claims and conversations with HMRC – it implies that the work done is specific to the company and doesn’t constitute a worldwide advance in science and technology.

The key thing to remember is that these issues are easily avoidable if you take the time to get to know HMRC’s guidelines, and make sure that your reports are produced by either people or systems that know what they’re doing. Here at WhisperClaims we put a lot of time and effort into making sure that our reports are robust, accurate and compliant with HMRC’s guidelines!

If you’re not already a WhisperClaims subscriber and want to explore our system or get a second opinion on how you are currently preparing claims, please feel free to get in touch. We’re happy to help!

How to remotely prepare R&D tax claims

In these days of increased digitisation, working from home and generally more spread out teams and working practices, it can be difficult to pin down a time when all relevant people are available to meet face to face. In the case of preparing an R&D tax claim, this can be particularly acute given the need for senior members of the management team to be in attendance.

Happily, there are a plethora of specific and less specific digital tools you can take advantage of to make sure that you can remotely deliver the great R&D tax claim service that your clients expect. Here’s our guide on how WhisperClaims can help you to get the best out of your tools and clients and make sure you prepare accurate and robust R&D claims remotely.

Video calling

Tools like Zoom and Skype have made it very easy to have ‘face to face’ meetings from anywhere! In preparing R&D tax claims, this enables you to talk through all of the work done in the claim period and gather as much information as possible in one go. It’s usually possible to record these calls too, so you won’t forget anything that you were told! However, there are some downsides. It’s easy to forget to ask key questions, and it can be difficult to verbally gather accurate information on costs. To mitigate this, you can have the WhisperClaims claim open in the background and enter the information as you go along, but this can lead to a more stilted conversation as you read out all of the options to your client!

Screen share

Rather than read out the questions or risk missing vital information, many of our clients opt to share screens through tools like Zoom. Working this way your client can see the WhisperClaims question set and can give you the exact information you need, while you retain control of the software and enter the answers yourself. This is how we do a lot of our training and demonstration calls, and it can be a great way to gather information. However, it can mean taking up a chunk of yours and your client’s time, and you can only complete as much information as your client has available on the call.

Collaboration

Many of our users prepare R&D tax claims remotely using our collaboration feature. This allows them to invite clients to directly access the system by themselves and answer the technical and costs questions in their own time, saving huge amounts of time. Their answers can then be reviewed remotely, checking that everything they have entered is accurate and in line with the scheme guidelines before downloading the report.

Our users have used this methodology to drive complexity and time out of existing processes, or simply to avoid losing control over the claim by outsourcing to specialists. It’s a win-win for them and their clients as it means an efficient, cost effective service that allows the client to get best value access to this increasingly important tax relief.

Of course, in reality our clients use a combination of all of these methods to deliver the best and most appropriate service to their clients!

However you decide to use WhisperClaims, we’re here to give you support, advice and training to make sure you’re using the app in the best possible way.

Is it better to take a grant or rely on R&D tax relief to help fund R&D?

We’ve written before about how grants can affect a claim for R&D, but even knowing this, it can still be tricky to work out whether it’s better to take a grant or rely on R&D tax relief to help fund R&D. It’s a tricky decision to make, but considering the following points should make it easier!

Cashflow

Grants are usually paid out in arrears, often on a quarterly basis. From a cashflow point of view, this means that a grant holder will see the benefit far closer to when the money is spent than with R&D tax relief. Depending on how quickly a company can pull together their accounts, R&D tax claim, tax comps and CT600 form, it can be over a year between spending money on R&D and seeing any tax benefit.

Another point to remember is that grants are often paid out in cold, hard cash, whereas R&D tax relief is often realised as a reduction in tax payable. Where this is usually of huge benefit to the company in the long term, it doesn’t offer the immediate positive effect on cashflow of a grant.

Reporting

A claim for R&D tax relief has no mandatory reporting requirements. All a claimant needs to produce is a technical justification and a calculation of eligible expenditure once a year, and they’re done!

On the other hand, grant reporting can be time-consuming, lengthy and repetitive. Grant holders are usually required to submit details of expenses, milestones and project outcomes regularly during the lifetime of the grant, and even beyond this.

Where’s the tipping point?

Overall though, it’s usually best to both claim R&D tax relief and as many grants as possible to maximise R&D funding. However, it is important to know where the tipping point is, when taking the grant it will mean that the company is worse off overall. It’s a fairly complex calculation, but really only requires knowledge of the type and size of the grant and the expected spend on R&D.

Here’s a quick chart to show how grants affect the benefit received by a profitable company with an eligible R&D spend of £150,000. As an SME, this company would receive approximately £37,000 in R&D tax relief if they didn’t receive any grant funding.

a chart showing how grants affect the benefit received by a profitable company with an eligible R&D spend of £150,000

First thing to note is that a company should always take a ‘de minimis’ grant if possible – a company receiving this type of grant and claiming R&D tax credits will always be better off. That’s because it’s only the amount of the grant that has to be claimed through RDEC, and all of the rest of the cost can be claimed through the SME scheme.

Second thing to note is that it’s a little more complicated when it comes to state aid grants. These grants push the whole project cost into the RDEC scheme for R&D tax, so taking a small grant can mean being worse off overall. For our example company, a grant of less than about £22,000 would actually cost them money, as they’d get a better return from just claiming R&D tax relief.

Conclusion

So, what does this all mean to an advisor? Well, the key thing is to make sure that you know what grants your client is thinking of applying for so that you can advise them on how this will affect their cashflow and overall benefits. The good news is WhisperClaims is set up to deal with all types of grants and make sure that the correct amounts of expenditure are routed through the SME and RDEC schemes, meaning that you can rest assured that your client’s claims are robust and defensible.

7 ways to successfully embed R&D software into your firm

So, your company has taken the plunge and signed up to trial WhisperClaims to prepare your R&D tax claims, and you’re raring to go! 

Your next step is to get the rest of your firm onboard. Well, while we won’t pretend to be experts on change management, we’ve pulled together this quick guide to help make your job easier. 

1. Mind the gap

How does your company currently handle the preparation of R&D claims?  Is there a defined process? Do you use a third party provider?

The first step to successful adoption of WhisperClaims is to work out how and where it can add value. Spend time really pulling apart how things are currently done, and look for gaps, bottlenecks and inefficiencies. Once you’ve identified these, you can look at how WhisperClaims could help. If, for example, you’ve been turning down opportunities because the claims are too small to be economically viable, think about how WhisperClaims could be used to remove costs from the process. On the other hand, if you currently outsource everything, think about how and when this can be brought back in house. 

Mind the gap

2. Find your champion

Ok, you’ve worked out how WhisperClaims can actually help your team. Now it’s time to find yourself a hero! It might have to be you, or you might have to persuade someone from the team to join you, but having a champion could be key to the whole endeavour. They’ll need to have good rapport with the team, be excited about WhisperClaims, and, for maximum success, be generally skeptical about change. If you can persuade the most cynical member of your team to be your champion, you’re half-way there!

3. Education, education, education

Right, it’s time to start training! Make sure you pitch the training at the right level – experienced teams won’t need a primer on the R&D scheme, for example, whereas if the team have never directly done an R&D claim, then diving straight into the software might leave them confused and more resistant than ever.

Make sure that you, and your champion, are clear on what pace your team will need in order to build their confidence. Some members of your team may find change overwhelming, so this will be your chance to show that you understand their needs and to get people on board.

training your staff in R&D tax relief software

4. All aboard!

Hopefully the training will have gone a long way towards getting the team’s buy-in for WhisperClaims, but you’ll probably still want to continue to work on this. Take the time to sense-check your plans with the team, and ask how they think WhisperClaims could be best used. Don’t let them override your plans, but do be prepared to make adjustments to include the team’s input and ideas.

5. Testing, testing

Ok, your plan has been optimised and the team are onboard – it’s time to get going! At this point, it’s a good idea to identify a particular subset of claimants to trial the software with. This might be new claimants only, or just smaller claims, but the key thing is to make sure that enough claims are put through WhisperClaims to give you enough data to analyse the effects of using the software. 

r&d tax software for accountants

6. Results and rewards

Once the trial is complete, it’s time to look at the results. How much time or money was saved? Were your clients satisfied with the process and output? How did the team feel about using it? Make sure to celebrate the success of the trial, and reward the team members that engaged with WhisperClaims. Show a league table, publish stats on profitability, give out chocolate – whatever it takes to get the final buy-in from your team!

7. Roll-out

So, you’ve convinced the team, tested the tool and refined the process. All you need to do now is roll it out far and wide. Work with your team to identify potential claimants, market R&D tax relief services to your client base and start putting as many claims as possible through the system!


Have you worked out if your clients are eligible for tax benefit yet?

Get some useful tips from our free online guides.

 

Lies, damned lies and statistics

It’s statistics time again! That one hallowed day of the year when I get to take off my Operations Director hat and let out my inner scientist. The annual Research and Development Tax Credit Statistics have been released, and, as usual, they make very interesting reading.

Now, from this point, I could just copy and paste the blog I wrote last year, because the trends in the data are remarkably consistent. The 20% year-on-year increase in the number of claims continues, as does the rise in first time claimants, which is great news for us and the R&D tax relief industry as a whole. However, I’m more interested in digging further into the stats, and looking at how they can be used and manipulated.

One statistic that all R&D tax relief specialists will tell you is that the average tax benefit from an R&D claim for FY2017-18 is £54,000. They’re not lying. If you take the overall total paid out in R&D claims and divide it by the number of claims, you get that number. Great, you might think, I’ve got lots of clients who could claim R&D tax relief, and would be really happy with a payout of £54,000.

However, looking a bit harder, and you’ll see that a very different story emerges. In FY2017-18, 76% of SME scheme claimants received less than £50k in benefit. Looking specifically at this group, the average tax benefit is only £16k, a serious drop from the quoted £54k. That’s not to say that most claimants wouldn’t be happy with £16k in benefit, but they might if they were expecting three times that!

The other statistic you’ll see time and time again, often alongside the £54k figure, is a company claiming a ‘100% success rate’ with R&D claims. Sounds great, doesn’t it? But it all depends on your definition of success, and, just like the R&D stats, can easily be manipulated to the point of being meaningless.

So, why would we point this out? Well, partly because we love it when statistics and marketing are aligned and being used to tell compelling stories, and partly because we’re suckers for upfront honesty. While statistics aren’t always what they seem, we’ve expended a huge amount of time and energy in developing a system that is what it appears to be – a straightforward way to gather information from your clients and the means to prepare robust and editable R&D reports at the touch of a button. While your success rate may not be 100% (clients sometimes go bust or miss the deadline), at least you can be sure that you’re using a system that is specifically and unashamedly designed for one purpose – helping you to take effort and cost out of your R&D process while enhancing your clients’ experience of working with you.

WhisperClaims nominated for the Scotland Tech 50

Last week we were surprised and very flattered to find out that WhisperClaims has been included in the long-list for Business Cloud’s Scotland Tech 50. The aim of this award is to recognise the 50 most exciting, disruptive and impactful Tech companies in Scotland, so to even be nominated feels great! It’s extra special as it came out of the blue – no entry forms or nominations from us!

It’s especially mind-blowing to be included in a list alongside some of the biggest names in Scottish Tech – SkyScanner and Freeagent, to name just a couple. Having only been in business for little over a year, it’s incredible to be spoken of in the same breath as so many really successful companies.

Inclusion in the final list of 50 depends on both the votes of the judging panel and the result of a public vote, so if you feel that we fit the description of an exciting and disruptive company, we’d love your support!

Simply go to the Scotland Tech 50 website, scroll all the way to the bottom and click on WhisperClaims. Voting closes on 9th October at 11pm, so you’ll have to move fast. Fingers crossed!

We’ve been shortlisted for the Scottish Financial Technology Awards!

Our Jen Badger gives us her heart-felt account of what it means to be shortlisted for the Scottish Financial Technology Awards a year on from the launch of WhisperClaims. 

Back in August, we were thrilled to hear that, on the back of our winning ‘Emerging Fintech Company of the Year’ at the Scottish Accountancy and Financial Technology awards, we’d been nominated for two more! We’re up for the ‘Product Innovation’ and ‘Rising Star’ awards at the Scottish Financial Technology Awards.

As a software start-up, any and all recognition is special. You work hard designing, developing and building your product, making something you’re really proud of. Then you start trying to sell it, and suddenly expose your baby to the reality of the world. Fear sets in as you consider how people might respond to your product. But then soon enough, after all of that hard slog, you impress someone. In fact, you impress them so much, they actually nominate you for an award. It’s an amazing feeling.

This latest pair of nominations is particularly special. We set out to produce a truly innovative and disruptive product, so to be recognised in the product innovation category is great validation of our product and business model. WhisperClaims is the only fully automated R&D relief claim platform in the market, and it’s great to have the team’s innovative development work acknowledged. It’s also incredibly flattering, a year since officially launching WhisperClaims, to be listed alongside such well-established names as Autorek, Hymans Robertson and even RBS!

As for the rising star category, well, that’s exactly how we feel! Over the past three years, we’ve risen from three of us sitting around a dining room table, mapping out our ideas on endless sheets of paper, to a fully-fledged company. We’ve got paying customers, a great team and a strong vision for the future, with no plans to slow down!

Having said all of that, if you were to ask me what I’m most proud of over the past few years, it wouldn’t just be the awards and nominations. I’m proud of what we’ve built – a great product, a happy customer base, and, most importantly, a great team. With all of that, no matter how it goes on the night, I know we’ll continue to feel like winners.

If you find yourself at the Scottish Financial Technology Awards on Wednesday 25th September please don’t be shy. We’ll be there, so come say hi!

Don’t miss out on a lucrative R&D tax relief payout!

“How can I identify clients that are eligible to claim R&D tax relief?”

If we had £1 for every time we’ve been asked this by a client, we’d (pauses to count on fingers) be rich! Seriously, it’s a common question, and one that’s surprisingly difficult to answer with more than an “it depends”.

The Government’s own guidance points out that R&D tax relief is not just for ‘white coat’ scientific research, as you might expect, but also for ‘brown coat’ development work in design and engineering involving overcoming difficult technological problems. However, this just broadens the scope and makes identifying eligible clients harder!

A process of elimination

If you were to ask us which of your clients definitely don’t qualify for R&D tax relief, that’s pretty easy. You can immediately dismiss all of you clients that are not limited companies – goodbye sole traders and LLPs! Once you’ve done that, we’d tell you to ignore any clients that are not going concerns, or already in administration – they’ll not be able to realise any benefit. The last easy filter is any companies that don’t have staff, and only pay the Directors dividends – unless you know that these companies have significant other costs, they won’t have expenditure to make a claim.

Narrow down the industries

After these easy black and white answers, however, everything turns various shades of grey. You could start by focussing on the industries and sectors where the most claims are made – the three sectors covering technical, IT and manufacturing account for 70% of claims, according to HMRC’s statistics. There will be a rich vein of eligibility within this section of your client base, and it’s a great place to start.

70% of claims

Identify the qualifying work

So, you’ve filtered out your definitely ineligible clients, and identified your technical, IT and manufacturing clients – what now? How can you assess the rest of your client base? This is where your in-depth knowledge of your clients, their businesses and their particular problems comes in. No-one is better placed than you to identify the clients who have expanded their product range through innovation and product development; taken on new staff to work on research products; received grants linked to development; employed staff with R&D-related job titles, such as testers, engineers, developers and designers; spent a lot on contractors to help with problem-solving; included costs for subcontractors, development or R&D in their accounts; or seen an increase in wastage and cost-overruns. 

Throughout this, you should bear in mind that qualifying work can include creating new processes, products or services, making appreciable improvements to existing ones, and even using science and technology to duplicate existing processes, products and services in a new way. 

Simplify your claims process

This assessment might seem daunting, even once you’ve filtered your list down to just those companies that you think are likely to be eligible. This is where WhisperClaims comes in – with its no obligation, real-time assessment of eligibility, you can enter the details of all of your potential claimants and let the system help you assess which of these to take forward, without incurring any additional costs.

Up to 33% back in R&D tax

Claimants can get back up to 33%!

So, why go to all this effort? Why make sure that all of your eligible clients are claiming? In short, because by not claiming, they’re missing out on a potentially lucrative payout for not very much work. Claimants can get back up to 33% of their eligible spend on R&D, and we’ve never met a company that wouldn’t welcome some extra income!

<<<Get your head around R&D tax relief. Read our free guides for helpful hints and tips. >>>

Emerging Fintech Company of the Year 2019 – another win!

Last week we were thrilled to be awarded ‘Emerging Fintech Company of the Year’ at the Scottish Accountancy and Financial Technology Awards. We were up against stiff competition in the form of two of our Codebase neighbours – Float and Mark to Market, and were genuinely surprised when our name was read out!

Although this is not the first award we’ve won, it does feel the pretty special. Funding the business ourselves, taking a risk on developing our R&D tax platform from an idea, to a prototype, to real customers, and now gaining recognition from the Accountancy sector, the very people who use WhisperClaims every day, is just a fantastic feeling.

The judges feedback also gave us a buzz – they were impressed by the WhisperClaims platform and its potential to massively disrupt an existing market, and by our capacity for future growth, both things we’re very excited about too!

Click here to read more about the awards, and see some more pictures of us in our finery!

Book a demo & get a guided tour of WhisperClaims

Book now

We use cookies to give you the best online experience. By using our website you agree to our use of cookies in accordance with our privacy policy.