What Every Innovator Needs To Know About R&D Tax Credits

From time to time we receive queries about particular HMRC regulations and whether we cover claims that arise from them under Essential Business Legal and our other commercial products. 

The topic of self-employed contractors, who provide their services through a service company and are subject to “IR35” comes up from time to time. (The answer is “yes”, we will deal with HMRC enquiries and disputes for self- employed contractors provided that the conditions of the policy have been met). Last week, we had a query that hasn’t come up before - about Research & Development (R&D) tax credits. 

If you have clients that engage in innovative projects in science and technology, you may be interested in this. 

About R&D Tax Credits

R&D tax credits can be claimed by companies which have incurred expenditure on innovative projects in science and technology. They can be claimed by a range of companies that seek to research or develop an advance in their field. HMRC define the types of project that qualify for R&D credits. E.G:

• The work must be part of a specific project to make an advance in science or technology.
• It can't be an advance within a social science like economics or a theoretical field like pure mathematics.
• The project must relate to the company's trade - either and existing one, or one that they intend to start up based on the results of the R&D.
• To get R&D relief the business must explain how a project:
• looked for an advance in science and technology
• had to overcome uncertainty
• tried to overcome this uncertainty
• couldn't be easily worked out by a professional in the field

SME R&D relief allows companies with up to 500 employees to:

• deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total 230% deduction
• claim a tax credit if the company is loss making, worth up to 145% of the surrenderable loss

A different significantly less generous scheme applies for larger firms and I‘ve included a link below for more information:

https://www.gov.uk/guidance/corporation-tax-research-and-development-tax-relief-for-small-and-medium-sized-enterprises#how-to-claim-rd-relief

According to a post by one lawyer firm, the HMRC’s large business directorate is challenging more tax relief claims and the sum being disputed in relation to R&D tax credit claims nearly quadrupled in 2017, up from £90m to £425m for large businesses.

Claiming R&D Tax Credits 

Businesses can make a claim for R&D Tax credits when they fill in their Corporation Tax self- assessment return by calculating their expenditure on R&D and supporting their claim with suitable information.

Does Cover Apply If HMRC Challenge R&D Tax Credits Claimed? 

Good news! Essential Business legal will come to the rescue if HMRC investigate the insured’s Corporation Tax self-assessment return and raise a challenge about a tax credit claim provided that fraud has not been alleged of course, and that the return has been submitted to HMRC on time. 

One innovation deserves another. We hope that your innovative clients enjoy the peace of mind provided by our innovative (relaunched) Essential Business Legal and other Commercial legal expenses insurance products!

Video guide to ARAG Legal Services website

We’ve created a new video to provide a short overview of our commercial section of the ARAG Legal Services website, to help business customers understand the ease and benefits of this valuable addition to the commercial LEI policy.



Our short,animated video provides a step-by-step guide to the website showing the simplicity and use of the website.

Our comprehensive, jargon free law guide, will help policyholders get to grips with business laws and regulations. Our extensive range of easy to customise documents will help them comply with the law and protect their business.

The top services include:

-employment agreements

-employee handbook

-debt collection letters

- Health & Safety compliance review

-job offer letter

-and more…

With ARAG Legal Services;your customers;will have access to a host of useful and legally binding documents at their fingertips and provide value to the policy... even if your customers never make a claim.

Is access to justice really out of reach for most employees?

The Guardian’s article “Access to justice is no longer a worker’s right but a luxury” provides an illustration of the difficulties faced by one individual who faced discrimination at work.

https://www.theguardian.com/commentisfree/2017/mar/28/employment-tribunals-workers-rights

On the face of it the lady concerned did not appear to be very well off but she was unable to obtain help with employment tribunal fees and in the event relied on her trade union together with crowd-funding to cover her legal costs and the tribunal fees.  Her case was settled and she was spared attending a hearing. 

We have blogged about the introduction of employment tribunal fees from time to time and this story serves as a reminder of the need for legal protection for individuals. BTE is more valuable than ever since the introduction of fees.

Following its review of employment tribunal fees the Government has confirmed that they have no intention of reducing the level of fees payable (£1200 for most claims that result in a hearing).

The story, however, does not paint the full picture.  It gives the impression that employment tribunal cases are scarce as fees deter individuals from pursuing their rights. While it’s true that claims against businesses have dropped since the introduction of fees the latest quarterly statistics – Q4 2016, show a 3% increase in the number of single tribunal applications received over the same quarter in 2015.

More importantly around 92,000 notifications of disputes were received by ACAS’s early resolution service in the year to March 2016.  The early conciliation service is free to both employers and employees and ARAG provides legal representation throughout the process for our commercial and family policyholders.  Parties are successful in arriving at an agreement through ACAS Early Conciliation in around one-third of cases and can avoid their claim escalating to tribunal.