by
David Prior
Earlier this month, owners from some of the leading digital businesses in the region came together for a roundtable to share experiences and expertise about R&D Tax Credits.
The productive and engaging session was held in association with tax credit specialists, Jumpstart, and held at the offices of CTI Digital.
It followed our two-part series over the summer looking at the scheme and various case studies.
Introduced by the Government back in 2000, the R&D Tax Relief Scheme was invented to encourage innovation and global competitiveness.
Any company investing in the improvement of a product or service, from software companies to breweries to SEO agencies, is involved in R&D – and is therefore potentially eligible for relief.
But the princely sum of around £1billion in tax credits is currently going unclaimed every year.
We assembled a group of leading digital business owners to get their thoughts on the scheme – and below are eight things we learnt.
1. There’s a general lack of awareness about the scheme
For a scheme that’s over 15 years old, it’s still relatively unknown. While a number of the businesses around the table were now claiming, there was a level of agreement that they were late to the scheme and even now were perhaps not claiming for everything they could be. Louis Georgiou (Code Computerlove) said that despite Code having been in existence since 2000, it only started claiming relief in 2010. Jon Keefe (KMP Digitata) noted that one reason could be that for a time the scheme became “a bit PPI” for some.
2. What amounts to ‘technological uncertainty’?
At the heart of a successful claim is the need to demonstrate that the project or part of the project was technologically uncertain. This equates to something that advances our understanding of some aspect of science or technology that goes beyond the standard practice in the field. Whether the desired result can be achieved, or how to achieve it, is not known or cannot be determined from generally available knowledge or experience in that field – hence the uncertainty. Adrian Williamson (Jumpstart) did note however that what was technologically uncertain five years ago – HTML5, for example – is now routine, so the goalposts are constantly evolving and developing.
3. There’s a grey area of ownership with some projects
Some technologically uncertain projects will necessitate the involvement of specialist contractors or freelancers. As Jon Keefe pointed out, this can lead to a grey area of ownership and an element of complexity as to who is actually eligible for relief. Adrian Williamson said each case would depend on a number of factors – such as IP ownership – but as a rule of thumb, if you’re the experts, it’s probably your claim. He agreed that writing R&D contracts into freelancers’ contracts – such as an app developer – was a sensible idea.
4. What if you under-estimate your claim?
Nick Rhind highlighted one case where his company had scoped out a relief-eligible project but ultimately significantly underestimated the investment required. In such a situation, Adrian Williamson clarified, if you can show HMRC that you under-estimated the size of a project because you didn’t realise how difficult it was going to be (because it was technologically uncertain), the claim would be based around the total rather than the estimated expenditure.
Can a company claim for a project that may be technologically uncertain only within that company?
5. Isn’t claiming for tax relief a very time-consuming process?
Mike Anderson (Nothing But Epic) said his company was in a very fast-growth phase and there was a question mark over whether they would have time to document a project to the required extent in order to submit a claim. Others around the table said that the process did not need to be so time-consuming – Louis Georgiou said he company had got better and quicker at doing it the more it had done it and that it had now managed to “outsource all the pain of doing it”. Jon Keefe felt that tax credit consultants were often not technical enough. Ian Wolfendale (Jumpstart) said that the process with their clients involved a two-hour meeting, where they would look at the projects involved, consider what was difficult about those projects, how the company overcame those difficulties and what the tangible benefit (or otherwise) of it was, and then send a report with the costs to HMRC.
6. Is an internal knowledge gap eligible?
Louis Georgiou raised the question of internal knowledge gaps – can a company claim for a project that may be technologically uncertain only within that company? Adrian Williamson said that while this was to an extent a grey area, bringing a company up to speed with the industry base line was generally not eligible for relief.
7. Could claiming relief cost you if your company is subsequently acquire?
Jon Keefe asked what would happen if a company claimed relief from the government and was subsequently bought by, for instance, an overseas firm. Would that company have to pay back the relief it had claimed? Absolutely not, said Adrian Williamson.
8. What are the chances of the HMRC suddenly pulling the scheme?
Adrian Williamson said that while Chancellor, George Osborne had investigated whether abandoning the scheme would save the Treasury money. In fact, for every pound the HMRC returns in tax credits, they get £4 back. In other countries where the scheme is operated – the likes of Canada, France and Germany – the results are similar. It is therefore a very secure, evidence-backed scheme and the chances of it being removed any time soon are relatively light, even post-Brexit. It’s a very good stimulation for the economy in terms of technology growth.
Many thanks to all those who attended the roundtable.
