The UK has a very generous R&D Tax Credits scheme, allowing you to claim for a significant proportion of your eligible R&D costs. The tax relief can make a huge difference, helping to fund new hires, accelerate the next phase of R&D, or simply provide cash flow to offer a bit of extra breathing room.
However, as is often reported to Parliament, many businesses choose not to claim because they don’t fully understand how the scheme works, and are afraid of the consequences of making a mistake.
This lack of understanding has allowed certain myths to take hold. From our own experience of speaking to innovative businesses, we hear the same misconceptions and concerns time and again. So, to help you separate fact from fiction, we’ve written this article to tackle four of the biggest “myths” that we’ve heard about R&D Tax Credits.
Myth 1: If your company is loss-making, you can’t claim R&D Tax Credits
This is one of the most persistent misconceptions we encounter, and it stops both large and small loss-making companies from getting their hands on much-needed tax relief.
Under the merged R&D scheme, the credit is an above-the-line benefit, worth an expenditure credit of 20% for your eligible R&D activities regardless of the size of your business. This credit is subject to Corporation Tax (CT). For example, if you pay the main rate of 25%, you’ll receive the equivalent to a net benefit of approximately 15% after CT. If you pay the small profits rate, you’ll receive a net benefit of approximately 16.20% after CT.
This means you will receive a cash benefit whether you are profitable or not. And for loss-making SMEs that meet the R&D intensity threshold of 30%, the Enhanced R&D Intensive Support (ERIS) scheme offers a payable credit worth up to 27% of qualifying R&D expenditure, depending on the size of your losses.
The reality is that whether you’re in profit or making a loss doesn’t matter; as long as you’re doing eligible R&D work, you should be able to make a claim. And don’t worry if you’re not sure which R&D scheme to claim for. We can help to guide you through which scheme you’re able to claim under and which is most beneficial.
Myth 2: Claiming Capital Allowances or Patent Box means you can’t also claim R&D Tax Credits
Businesses that have claimed Capital Allowances often think that they can’t claim also claim for R&D Tax Credits, but it’s just not true.
Capital Allowances and R&D Tax Credits are two completely separate reliefs, covering entirely different types of expenditure. Capital Allowances relate to the purchase of physical assets such as plant and machinery. R&D Tax Credits are primarily concerned with staff costs, consumable items or other related expenses like software, cloud computing and data licences. In most cases, there is very little crossover between what’s eligible under each scheme.
The same logic applies to Patent Box. R&D Tax Credits and Patent Box aren’t mutually exclusive. In fact, they tend to complement each other well because innovations that qualify for R&D Tax Credits often go on to generate the patented intellectual property that Patent Box is designed to reward.
If you’ve been told (or assumed) that your existing tax relief claims rule out R&D Tax Credits, it’s worth getting a second opinion because it’s probably not true!
Myth 3: The paperwork is too burdensome to make it worthwhile
Some businesses have found the process of supporting a claim to be disproportionately time-consuming. We recently worked with a client who had made a claim a few years earlier through a large accountancy firm. The benefit they received was in the tens of thousands, but the internal resource needed to produce reports, go through revisions, and manage the process was so huge that they didn’t bother to claim again afterwards because when they factored in the time cost, the net return was negligible.
Our approach is deliberately different. We do the bulk of the work for you to make the claims process as light a touch as possible for our clients.
In practice, that means we’ll coach you on how the claim works and what we need. We’ll ask you to send the relevant evidence, but then we’ll draft the technical report on your behalf. We’ll walk you through everything before submission, and nothing is sent without your sign-off, but we’re the ones that do all the heavy lifting.
A consistent theme in our client feedback is how we’ve made the claims process manageable alongside their day jobs. For example, here’s what our client Apexl Studios said: “Leyton made the whole process pretty simple. I could just have a conversation with the team about what we’d done, without having to go through reams of paperwork. I just don’t have time for that. Their knowledge and flexibility saved us a huge amount of time.”
Myth 4: Making an R&D claim significantly increases your risk of an HMRC audit
HMRC has introduced additional requirements in recent years, including pre-notification for R&D claims, as part of broader efforts to reduce non-compliance in the R&D tax relief scheme. These changes have understandably made some potential claimants more nervous, but the risk of a compliance check for a well-prepared and well-evidenced claim is far lower than many normally assume.
Worries about triggering a compliance check are completely understandable, but it shouldn’t be a reason to avoid claiming any relief you’re entitled to. HMRC aren’t looking to catch you out, they’re looking to stop fraud and error.
And if a compliance check does happen? Don’t worry, we’re here to help you through it. We defend our clients free of charge. We manage all communications with HMRC, guide you through the process, and work towards a successful resolution. We also offer an enquiry defence support for non-clients, who are looking to defend legitimate claims.
Here’s what our client Precursive said about our service: “Leyton’s enquiry defence protection clause gave us the reassurance to move forward with confidence. Having that additional layer of support, which we hadn’t previously had in place, means we know Leyton would be there to represent and defend us in the event of an enquiry.”
How Leyton can help
The single most common mistake we see is businesses ruling themselves out before they’ve had a conversation about their innovative projects. Whether it’s because they’re loss-making, because they’re already claiming other reliefs, or because a previous claim put them off.
But the only thing that matters is if you’re doing eligible R&D. If you are, there’s almost certainly a route to a claim. Everything else, including which scheme, what the benefit looks like, how to minimise your time commitment, is something we can help you work through.
Speak to an expert to find out more.
