R&D tax and VAT
Tax is rarely straightforward, and when you’re putting together a claim for a tax refund, it can be hard to know what to include.
One question that’s often asked regarding the research and development tax credit scheme is whether you should include any VAT you’ve paid when you’re adding up your claim.
The answer is normally no – unless you’re not VAT registered, in which case it may be yes.
What is the research and development tax credits scheme?
The scheme is designed to support companies who are undertaking pioneering research or innovation. This can be in a range of sectors, from engineering to agriculture, but must be seeking to achieve scientific or technological advancements specifically. The tax credits reimburse some of the costs for such projects; you can claim for things like salaries, materials you’ve used, and even a proportion of your utility bills. That said, you can only claim for money you’ve spent in direct relation to the research – so you can’t claim for everyone’s salaries, just those of the people who are working on the project.
So why can’t I claim back my VAT?
VAT is a tax charged when goods and services are sold, and it works like this. You charge your customers VAT by adding it onto the price of things you sell. Every three months, you fill in a VAT return declaring how much VAT you’ve charged your customers, and also how much VAT you’ve paid to other businesses when you’ve bought things from them. If you’ve paid more VAT than you’ve charged, you can reclaim the difference from HMRC; if you’ve charged more than you’ve paid, you pay HMRC the shortfall.
So, since you can claim VAT back in this way, you can’t also include it as part of your research and development tax claim, or you’d be getting it back twice. Which would be nice for you, but not so fair on the public purse.
Businesses selling VAT-taxable goods and services worth more than £85,000 in a year are required to submit these quarterly returns, and cannot, therefore, claim VAT on R&D expenditure. If your business is not VAT registered, however, and thus doesn’t charge VAT, this doesn’t apply to you. As such, you might be able to include any VAT you’ve paid in your r and d tax credit claim.
If you are VAT registered, you’re unlikely to be missing out on much, as only a small proportion of research and development costs incur VAT. These include utilities, softwares costs and consumables, but the bulk of most claims is made up of salaries, on which no VAT is paid.
If you’d like to work out the amount you could claim for on your R&D tax credit claim, take a look at this r&d tax credits calculator from specialist accountants R&D Tax Solutions. You should also seek advice from an R&D advisor before submitting your application.