R&D tax credits: Why the government has stopped issuing blank cheques for your ‘R&D’ efforts

A quick Google search will fill your screen with links to company pages of R&D tax credit ‘experts’. Each with paragraph upon paragraph referencing facts and figures on how much money there is to be ‘made’ from claiming R&D tax credits.

R&D tax credits may feed your business with a much needed financial boost which is a fair reward for your appetite to risk in following your visions. However it has also made somewhat of a murky sub economy of R&D tax credits ‘claim specialists’. You see, the UK governments definitions on what can be claimed through their R&D tax credits system are very broad. This is good as it includes many of your genuine R&D activities but it also leaves itself open to exploitation. Many of the ‘companies’ (many are just individuals with a laptop operating from their spare room) that exists solely to claim your tax credits for you use it as their sole or majority line of income. So as you may guess, they are highly incentivised in getting that government pay out for your business. Great, you may be thinking, but you may be wrong in doing so. The average R&D tax credits received by UK SME’s is just north of £50,000. Unfortunately the penalty your business will receive when a claim is processed incorrectly will on average, be north of £50,000. This is because the penalty can be 100% of the tax claim. And the penalty for the company you used to claim on your behalf? Well, that would be £0, as per their T&Cs. The good news, at least for all us honest folk, is that the government is applying far more scrutiny to R&D tax credit applications, with a strong intent on avoiding pay outs where the claimant has not been totally honest. So where the tax credit scheme aims to reward your creativity, it does not apply to all areas. If they find that your creativeness has leaked into your accounting or tax claim forms they will punish you severely. In 2022 the government also announced plans in the process where, the name of the person making the claim on behalf of the business must be named. Therefore those spare room ‘specialists’ who’s business model relies on making as many applications as possible to offset their poor rate of return, will effectively become blacklisted. This is great news for your business as it means only claims with a high chance of succeeding will be made, and they will only be done so by companies that have a high success rate. This virtually eradicates the risk of your business receiving a hefty penalty for making ‘errors’ on the application form.

Just as our capitalist economy demands, there are a lot of companies operating in this space, most genuine but many opportunistic. WTS Advice Group does not operate in this space but we do support and encourage R&D activities. We also highlight the benefits of R&D tax credits where appropriate as it can offset the costs you spend on our services. This is an obvious win -win for both parties as you effectively won’t pay for our services, meaning you will have additional funds to pay for our services where R&D doesn’t apply. Through experience we have come across several companies specialising in R&D tax credit claims and although it is not our policy to recommend any (as it is not our speciality area) we would be happy to point out the names of the companies we have brushed shoulders with in the past.

Lastly, we were going to write an article arguing the benefits of R&D tax credits for your business. However after a few minutes of research we found it had already been done ten times over and we would have just been quoting the same facts and figures as everyone else. If you have never come across R&D tax credits before we strongly recommend you open a new page in your browser and start looking into it now. Many of you will benefit from this government initiative which is designed to encourage the type of innovations you may already be working on.