Derbyshire-based Medstrom designs and manufactures bespoke healthcare equipment used in NHS hospitals to assist with moving and handling, skin management, infection control, and patient falls as well as managing assets on behalf of many NHS trusts. When the company approached TBAT Innovation with a new project, it was evident that previous project costs such as salaries and materials would make them eligible for an R&D Tax Credit, going back three financial years. Whilst the product development aspects of the company generated a very robust R&D claim, we identified an even larger opportunity with the 3-year development project for Medstrom’s asset tracking platform. This increased the original claim by 150%. Preparing the credit report and submitting the financial claim to HMRC was relatively straightforward, and by maximising the claim, Medstrom was able to release vital funding for future R&D, thus fuelling growth.
R&D Tax Credits can be used to offset your current tax bill, extend losses to offset future tax, gain a repayment of tax already paid or generate a payable credit from HMRC of losses generated through R&D. I have been working on R&D Tax Credits with companies of all sizes since 2011. It became apparent to me that clients were consistently misinformed about this relief by their accountants, or simply did not apply in the belief that only companies with laboratories and staff in white coats could claim. Perhaps this is a failure of marketing by HMRC, or a common misunderstanding of the words “research” and “development”. There are numerous examples of companies, like Medstrom, who have used UK tax law to their advantage and your company may be entitled to a proportion of the estimated £2 billion unclaimed R&D Tax Credits.
Who qualifies?
A common misconception is that the relief is only for big companies. The reality is that the majority of innovation now takes place in small and medium-sized enterprises who are precisely the companies who should be applying, whether profitable or loss-making. Research and development tax credits cost the exchequer around £1.4 billion a year. However, in the past 5 years almost £2 billion of unclaimed R&D tax credits have been left at the table.
Eligible costs
The definitions of eligible R&D and eligible costs are reasonably broad, and eligible R&D activities often take place across the whole range of company operations. A careful audit of a specific R&D project should identify the costs of staff engaged in the research, consumable materials, any software development, subcontractors’ and temporary worker expenses. As long as some of the work is complex and challenging, there’s a good chance that a portion or even a majority of the costs will qualify.
What next?
If you find a specialist to help you file a claim for R&D tax relief they should be able to help you:
- Identify your eligible R&D projects – historic, current and future
- Help you understand how a historical claim can be best used to meet your tax planning requirements
- Determine the expenditure incurred on your qualifying activities
- Optimise the value of your R&D Tax Credit
- Draft the supporting documentation (financial and technical reports)
- Work with you to finally submit the claim & liaise with HMRC
And Finally…
The political will behind the R&D Tax Credit scheme is strong. Industry and politicians agree that increased investment in technology and innovation is key to ensuring the continued stability and growth of the UK economy. R&D Tax Credits make more cash available within the business to fuel further investment in innovation.
Over the last five years, TBAT Innovation has successfully claimed back approximately £7.5m for a range of industry sectors from medical to marine, and in disciplines from software to manufacturing. We estimate that this represents over a quarter of a billion pounds spent by the companies we have worked with to reclaim the tax; time and effort worth every penny investing into further research.