You shouldn’t always claim for R&D tax credits

R&D tax claims are often really important since they work as a way to offset or relief the costs incurred when seeking innovation in the field of science and technology.

A lot of businesses benefit from this relief one way or another, whether by receiving cash payments or reduced tax bills. However, on some occasions, an R&D tax credit claim might not be the most optimal solution for your business. So here we’ll be exploring some scenarios where it might not be beneficial for you to make a claim.

Our company is part of the creative industries

Businesses that are part of the creative industries have their own separate creative reliefs that are industry-specific, and may prove to be more beneficial even if you’re engaged in R&D. You can claim both R&D tax credits and your creative relief, but there are certain things to take into account, like not being able to claim both of them on the same expenditure, so it is advised that you seek help from a specialist to know how to proceed in this case.

You have granted funding

SME R&D tax credit claims will usually be invalidated if the project has been funded by grants categorized as ‘notified state aid’. Normally, granted funding is applied previous to starting an innovation project in order to offset the costs of it. Because of this, it tends to rule out the chance to claim tax credits. This isn’t necessarily bad and can even be of advantage if the value of the grant is more than what you can claim through the tax relief, or, can also be of advantage if cash is needed up front before starting the project itself.

You might still have the possibility to make a claim under the large R&D regime (RDEC) but as said with creative relief, it’s advised to speak to a professional first; he could help you determine whether a grant or an R&D claim is the way to go.

The structure of your organisation doesn’t qualify

Organisations such as a charity, sole traders, partnerships and academic institutions can’t apply for an R&D relief claim. However, if your business is a UK limited company, you can opt for a claim on qualifying activity.

Another variable to take into account is if you’re part of a group structure. In order to make a valid claim, the costs of the project need to be located with the right entity, in addition to this, because of the group structure, you may have to apply under the RDEC regime instead of the SME regime even if your business is small and the costs are associated with you.

You took too long to make the claim

You can make a retrospective R&D claim, but there’s a time limit to take into account, if you had a project that qualified but didn’t make a claim and more than two accounting periods have passed, you no longer have the ability to make a claim.

No salaries

There’s a qualifying cost to consider doing a significant R&D tax credit claim. Because these claims are based on investments that are made in pursuit of technological or scientific advancement, things such as salaries and material costs must be paid in order to make a claim that is worthwhile.

Some professional advice

At M3 Partners, we’ll help you make the right choices when it comes to R&D claims. We work with several organisations in a diverse number of sectors in the industry. We can help you out identifying any project that might be eligible and give advice on how to proceed to ensure a reward for your activities, whether it is in the form of R&D tax credits, grants, or creative relief. Contact us today.