R&D tax credits have been around for about two decades and are available in over 50 countries. Here, BDO take a look at five examples of why they are currently more important than ever and how, as we emerge from the lockdown period R&D tax credits could just be the ray of sunshine we all need.
Getting your teams involved:
Being part of a successful cash and income generating R&D claim is something engineering / software development teams should be rightly proud of – after all they help make up for C-19 related shortfalls in income and cash flow and significantly contribute to the ongoing success of the business.
Time and money spent on increasing a company’s digital and online offering could qualify for R&D tax credits where the solution is not obvious and goes beyond simply implementing and configuring an off the shelf product;
Significant enhancement to the network infrastructure of a company to allow for remote working, the improvement of a document version control for sharing between team members, or the development of a security model or protocol to enable staff to work from home may also qualify.
Problem solving is not wasted time:
Time spent during lockdown trying to figure out a solution to a complex software/engineering problem (and even learning new skills or undertaking training to assist with this), can be included in a R&D claim, so this time was far from ‘wasted’;
Client facing projects can also qualify for R&D tax credits where new knowledge in the particular field of science or technology is gained by the company’s personnel working on a specific client project.
This really is a time when companies who continue to innovate (even on client facing projects), could get a significant step ahead of their competitors. The government backed R&D tax incentives help de-risk and incentive this type of venture and help propel us all into sunnier times.
Time spent reviewing and seeking to optimise a R&D claim can also help maintain a company’s value. For example on a PE exit where average EBITDA over the last three years may be used to calculate the company value, an optimised R&D income for the ‘COVID’ year may help maintain the average.
And just to add to the good news, HMRC has committed to reviewing and paying out R&D claims within 28 days of submission and we are seeing this in practice. Where a company has obtained government grants and loans to help run the business (e.g. Bounce Back Loans) it need not jeopardise the R&D claim as long as it does not directly subsidise the qualifying R&D work.
To find out if your business projects could qualify for R&D tax credits, please get in touch with Aman Nirwal (firstname.lastname@example.org)