Amidst a global pandemic, and with the UK’s imminent departure from the EU causing turbulence and uncertainty across the economy, it is understandable that limited companies are crying out for support from the government. But, while some schemes have been put in place to combat the economic downturn felt by both companies and individuals, such as the furlough scheme and the Coronavirus Business Interruption Loan Scheme (CBILS), some would argue that more could be done to assist ailing firms.
This is predominantly true in the start-up ecosystem, especially for currently loss-making companies who are pre-seed, or those going through Series A funding rounds and are building out their product (digital or physical), their brand, and their unique selling point. Many of these business owners did not qualify for the aforementioned CBILS loans and are unwilling to take equity funding or debt financing to keep their companies and their entrepreneurial dreams alive.
However, the UK government does have a state aid scheme to assist start-ups and provide them with much needed cash (if they are loss-making) for the aforementioned purposes.
The Research & Development (R&D) Tax Relief scheme works retrospectively and allows limited companies performing innovative activities in various industry sectors (including technology) to claim back up to 33% of certain expenditures incurred in product development. This is done through an emendation to their corporation tax return, submitted to HMRC in conjunction with their annual accounts.
In terms of technology companies, the R&D Tax Relief scheme can be applied in numerous marketplaces. These include blockchain, Internet of Things (IoT), Financial Technology (FinTech), Artificial Intelligence (AI)/Deep Learning/Machine Learning, as well as more commonplace software engineering activities, such as website/app development. Further technology types that can also be claimed for include both Cleantech and Climate Tech, as well as Ethical and Social Governance (ESG) electronic trading systems.
An R&D Tax Relief claim consists of two facets:
1) A financial side – The type of expenditures that technology companies can claim back are a proportion of their salary costs, subcontracting/Externally Provided Worker (EPW) costs, software licenses used in their R&D processes and consumable costs, for those involved in the creation of physical technology products, e.g. IoT devices, hardware, etc
2) A technical side – A technological report is submitted to HMRC, providing at least one (in most cases two or three) deep-dive case study to be representative of the innovative activities of the company, as a whole, during the period(s) that a claim is being submitted for.
A qualifying project, from HMRC’s perspective and according to the associated tax legislation, is quite broad in nature. It must:
- Seek to achieve an advancement (i.e. do something for which the knowledge to do so was not available within the public domain, at the time of development);
- Overcome/encounter technological uncertainties (i.e. overcome/encounter technical challenges); and
- Be undertaken with a logical/systematic approach.
Due to the inherently logical nature of computer science/software development, in the technology sector this third criteria is presumed and it is thus the key job of our R&D advisory team at Beavis Morgan, to discern a limited company’s qualifying R&D activities and draft up the aforementioned technical document. This is in addition to calculating qualifying R&D expenditure and preparing amended corporation tax computation(s), for submission to HMRC.
Our specialists at Beavis Morgan are dedicated to helping companies secure government money back for innovation, enabling them to continue to develop and enhance their products and services and achieve sustainable success. To this end, the team is ideally suited to assist limited companies of all sizes and across all business life stages, especially startups, within the technology sphere.
For further information about R&D Tax Relief and how we can assist you and your business, please contact Steve Govey, Simon McCarthy or a member of the Beavis Morgan R&D Tax Advisory team, for a no-obligation consultancy discussion.