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!

British business urged to avoid employment problems in 2015

ARAG UK are forecasting another tough year for employers as complex new legislation kicks in. For 2015 a major stumbling block is likely to be shared parental leave and other new parenting rights which were created by the Children and Families Act 2014 and come into effect for births from 5^th April this year.

 The legislation will allow either parent to take responsibility for their child's care by co-ordinating up to 50 weeks' shared leave-taking between employers if necessary. Mothers must still take 2 weeks compulsory maternity leave after the birth and fathers are still entitled to two weeks' paternity leave. After that leave can be shared in single or multiple blocks of leave but employers will be able to refuse discontinuous leave patterns subject to entering into a two week discussion period. There are a number of notices to be completed which must be provided at least 8 weeks before the proposed Shared Parental Leave (SPL).

All leave must be taken during the first year of the child's life.  There will be 20 additional 'keep-in-touch' days to be shared between the parents.

 I know that experienced professionals are sometimes wilting under the pressure of accurately interpreting new rules, but ARAG are here to help get it right. Policyholders can get advice directly from qualified legal advisors and are insured against legal defence costs if disputes arise.

All ARAG commercial legal protection policies include online and telephone assistance backed up by comprehensive legal defence if an employment dispute arises. In addition, for those customers who want additional peace of mind, the Employment Practices Protection policy focuses on complete cover without the requirement for claims to satisfy “reasonable prospects of success” test following a health check of the policyholder's employment practices and procedures.

 In summary

·         SPL allows an eligible mother or primary adopter to share up to 50 weeks of leave and 37 weeks of statutory shared parental pay (SSPP) with their co-parent.

·         There are a number of eligibility tests that need to be satisfied.

 In addition

• Employees can return to work during SPL for up to 20 SPLIT (Shared Parental Leave in Touch) days.
• Existing terms and conditions continue to apply save in respect of remuneration. 
• Employees are entitled to return to work to the same role or a similar role, depending on the amount of leave taken.
• Employees are protected from detriment and dismissal in connection with exercising their rights to take SPL.

David Haynes
Head of Underwriting and Marketing