BScaleRD claims for SMEs

BScaleRD claims for

BScale Legal services for start-ups, scale-ups, founders and investors R&D claims for small and medium size enterprises – a good news tax story The detail on this one can be complicated. But the headline messages are nearly always good for businesses overcoming technical challenges. We can help your business, very cost effectively, with: • A high level assessment of the likely value of an R&D claim • Preparing claims for filing, together with supporting documents • Implementing a process to capture the information required to support future claims on a real time basis. We also regularly risk assess R&D claims in the context of M&A transactions, particularly for fast growth businesses, to ensure these are robust. Overview of key points for R&D for small and medium size businesses Small and medium sized enterprises (SMEs) Small and medium size businesses which have incurred qualifying expenditure can get extra tax relief for this. Very broadly, to qualify an SME, the business and certain associated businesses must have: • less than 250 members of staff and • turnover which does not exceed €50m or a balance sheet size of less than €43m. Care is needed where an entity is a joint venture or, for example, has institutional funding and the position should be reviewed to make sure it can still qualify. Value of relief Where R&D relief is available, the actual value of the relief is £43.70. Or, put a different way, £100 of qualifying spend can offset £230 of taxable profits. If the business is loss making, a credit can be reclaimed of up to 14.5% of the amount that would be deductible against profits – so for every £100 of spend, cash of £33.35 can be reclaimed (subject to a restriction reflecting the total of the losses). This is very attractive in cashflow terms, but needs to be balanced against the loss of value as compared with waiting for full relief where, for example, the business is about to move into profit. This is particularly significant given the expected rise in the corporation tax rate to 25% from 2023, although the impact of the small companies rate will also need to be considered. Modelling the value of the relief against business forecasts will help ensure the most appropriate choice is made. But for businesses still in development phase, this remain a way of deferring the need to raise cash from other sources and the discount may be worth it to improve immediate cashflow. However, from April 2021 the amount of cash reclaims is also capped at the total of £20,000 and 300% of relevant PAYE and NIC costs, unless the company is exempt. Exemption applies where the company’s employees are, broadly, engaged in preparing or creating IP and certain independence conditions are met. This is an anti-avoidance measure but may catch some UK businesses with genuine research activities. What expenditure can qualify For expenditure to qualify, cutting edge science and technology research will obviously be eligible. What is often less well understood is that the relief is also available for expenditure on resolution of scientific or technological uncertainties. The advances in question do not have to be the kind that are published in scientific papers, and may be very specific to the business concerned. They do have to involve an uncertainty that a competent professional can’t readily resolve. But they can occur in many fields – from agriculture to construction. And they can involve new adaptations or applications of existing technology which involve uncertainty. Spend on abortive projects can qualify as long as the criteria are met – the relief is not restricted to projects which succeed or turn out to be valuable to the business. There are some red lines to bear in mind • Pure maths, statistical methods or modelling do not qualify, even if these involve substantial innovation >