Why R&D tax claims are so interesting and can open doors of opportunity

Why R&D tax claims are so interesting and can open doors of opportunity

I love the art of debate and putting forward a persuasive argument in support of a claim for tax relief. Why? Because it is invariably based on the story behind the blood, sweat and tears of business owners in their attempts to stay ahead of the game and provide bespoke products, service and processes to their most demanding customers.

Clients and prospects are amazed at the true story of the London based chef who got a six -figure claim for effectively improving cooking processes.

R&D project work involves close working relations with directors and their key technical staff and I have learned so much from them and across many varied business sectors over the years.  I have seen the passion, drive and enthusiasm underpinning aspiring and established entrepreneurs alike. This is certainly something you cannot get from a cold read of the company’s financial statements.

Claims come in many shapes and sizes (it is all relative after all) but without doubt it is very pleasing to see business owners’ eyes light up when they realise they have been involved in R&D and the penny drops on the cash flow benefits behind making a successful claim.  

The guidelines on R&D tax credits require that “the project seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty”.  These are very widely written requirements.  In addition, the guidelines also go on to elaborate that qualifying projects seek to “make an appreciable improvement to an existing process, material, device, product or service”.  So not only can you invent the wheel but you can reinvent it and streamline it.  This is of particular importance where the knowledge already exists out there but is either IP protected or is simply unattainable by smaller businesses due to cost considerations.

So how can R&D efforts open new doors of opportunity?  Some projects I have been involved with:

Equine rehabilitation equipment involving a rotor flush motor and filtration system: The client became such an expert over a four year period, the leading subcontractor specialists could not come up with a solution, the client  acquired the patent on the partial solution at a knock down price and perfected it.  This in turn led to a breakthrough which the commercial laundry industry was eager to buy into.  The client now has two business streams.

Collaborative multi-device apps for use in modern teaching environments: The client was told by a firm of London lawyers that there would be no way to IP protect any aspect of its efforts.  Luckily, the week before I met the client I had attended a presentation by leading legal, regional specialists in intellectual property.  I introduced both parties and surprise, surprise where there’s a will there’s a way.  Fast forward to this year in a pandemic world – this company was acquired in July by a global leader in standards-aligned digital curriculum resources.

Sports netting business had previously subcontracted all manufacture to India.  The company started to investigate new bonding and meshing processes in-house.  This led to the decision to outlay the cash on bespoke weaving machinery leading to increased profit margins and a legitimate mitigation of tax (which is after all is a business overhead which should be responsibly managed like any other cost-centre).

IT based highways control solutions subcontractor: became the main contractor by delivering superior solutions through R&D efforts to deliver pioneering smart motorway technologies. The technical director who often worked an 80 hour week and took a salary plus sizable dividends for his efforts was faced with an additional personal tax liability of £18,000 annually under the new dividend tax rules.  I was able to demonstrate that a remuneration policy of salary instead of dividends whilst engaged in ongoing R&D significantly improved his and the companies tax position.  That director is now the director of digital technology in one of the UK’s most admired Plc’s.

Don’t you just love the holistic nature specialist tax advice can take on?

Although there were no major announcements on R&D tax relief rates in the Autumn Budget 2021, the Chancellor did announce that R&D tax relief would be expanded to cover cloud computing and data costs.  If you need advice on whether your business or a project would qualify for R&D tax relief then do contact us at our offices in Liverpool, Wirral and Chester.