Give us a brief overview of the R&D tax credit claim, and the process manufacturers have to go through?
The R&D Tax Credit claim process is reasonably straight forward. Unlike a grant that pump primes innovation, R&D Tax Credits reward a company after their yearend for investing in innovation and research and development. For a privately owned company that (in the group) has less than 500 staff, a claim is worth a 26p tax saving for each £1 spend on R&D, or, if you are loss making, a cash back of 33p for each £1 is possible. Large companies can also claim under a different scheme at about a third of this rate. The beauty of the scheme is that it isn’t competitive – if the technical and financial report submitted is strong enough and explains clearly what has happened, the claim is upheld and the benefit approved.
Some companies collate what R&D they have done throughout the year and keep financial and timesheet records as they go along. Other companies reflect on what they have done at year end. Either way, once a companies financial year has ended, it is time to compile and write a technical report that describes the projects undertaken, the technical difficulties that had to be addressed, how these were overcome and how this takes their knowledge beyond the mainstream – all this qualifies the R&D claim. Alongside this, a financial assessment needs to be undertaken to identify who has spent what time on projects and what external costs were involved – this quantifies the claim.
These two sets of data are passed on the accountant, who makes adjustments in the tax computation and inputs to the CT600 (the form for HMRC). Depending on the profit/loss making status of the business, will dictate whether there is a tax saving or the potential for cash.
You can look at two full tax years retrospectively plus the one you are in. If a company’s year end was 30th April 2020, we can make a claim for April 2018 and 2019. Once we get to the 1st May, the 2018 year claim dies.
Although many people undertake a claim in house, or alongside their accountant, we have found there is considerable under claiming. People find it tricky to question themselves about work 12 months ago and review it with rose tinted glasses on. Accountants are not technical people and don’t have the broad experience of challenging technical staff as to the work they have been performing. Using an independent expert can significantly boost claims – our experience is at least a two to three times improvement. Whilst the cost may be more to use an external agency, the benefit can be really significant.
TBAT offers a free review service so companies can understand whether their claim is appropriate for the work undertaken or can be significantly boosted.
Examples of costs include PAYE salaried staff, the use of subcontractors and contract staff, materials used in R&D etc. It is very easy to suddenly arrive at a large R&D cost without knowing about it.
Do medtech / life science / pharma firms qualify?
Nearly all companies in this sector should be able to make a claim. From product development, installation of new production lines and equipment, taking someone’s product and making it GMP, running of trials, sub-contract development work and installation of new management information systems. TBAT has seen a very wide range of projects from within this sector. The skill is exposing what has been done and identifying the challenging activities involved.
What service are you offering in regard to R&D tax credit claims to said firms?
TBAT offer a free consultation not only to see if a company is eligible to make a claim and try and give a very rough assessment of the size of the benefit, but for those already making claims, if the claim size can be improved on. The client can then choose to do a claim themselves or use TBAT services. We can operate fully remotely in the current circumstances. We would interview key technical staff and request financial details. We compile the technical report and crunch the numbers coming back for edits and confirmation of the cost model. We then work alongside their accountant for submission. We have our own in-house accountant who can submit if required. This comprehensive approach maximises the claim and ensures it goes through in a timely manner.
Specifically, what support can you offer to life science firms during this crisis?
The current state of affairs means that many companies need to be addressing their short, medium and long-term cash needs. TBAT works alongside many companies to understand what the latest technology grants are and how they can be applied for, put in place a scheme of work to maximise and expedite R&D tax claims. How many companies wait nine months to complete their end of year accounts? I would say some 75%. We work with companies to get their accounts to complete their work in three months after year end and in parallel complete an R&D tax claim. The company then knows exactly what their tax bill is going to be six months ahead of paying it, or if the R&D claim generates a cash back, to get that cash in within five months of year end and not 12 months.
There are a couple mechanisms companies can use to bring forward a cash paying R&D tax claim. The first is by engaging their accounts in month 11 of their financial year and ensuring everything is in place to have completed the annual accounts within four weeks of their yearend. TBAT often deliver an R&D tax claim in the same timescales so all can be submitted to HMRC within a month of year end. We have had clients receive five figure sums from HMRC 10 weeks after their year end!!!
The second is where a company brings their yearend forward by up to three months. So, if your year end is August 2020, you could shorten your tax year to say the end of May and make a claim within 4 weeks of that date. That releases three quarters of the tied-up R&D claim cash back into a company months earlier.
The government has announced a number of schemes to assist companies in the form of grants and loans. Many of these require a business plan and comprehensive cash flow forecasts in order to successfully secure the funds. TBAT has worked with many companies to secure technology grants, capital grants, bank loans and equity finance. Each of these need to have a strong and believable narrative and robust and comprehensive cash flow. We are developing a package of support for companies to assist them to maximise their chance of securing government funds.
You are offering to R&D tax credit claims for one year for free – how big a benefit is that to manufacturers?
TBAT is keen to do its part in fighting Coronavirus. As the government releases grant funding schemes to develop vaccines, drugs, pre and post infection tests and modelling technologies for companies to apply into, TBAT are offering a free consultation to maximise a company’s chance of success. We have in-house BioMedical and BioChemistry doctorates who are able create and write these targeted proposals.
Both the above offers can really help companies secure the funding they need to help fight this devasting virus.
Within R&D tax credit frameworks, there exist varying degrees of guidance, each with distinct purposes. These are ‘Meaning of Research & Development for Tax Purposes: guidelines’, 'CIRD Manual (Corporate Intangibles Research and Development)' and ‘Guidelines for Compliance’
There were some important announcements made regarding the future of the R&D tax credits schemes both in structure, operation and who can benefit as well as wider investment in R&D in specific sectors.
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