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Can I claim R+D tax credits as a sole trader?

Being a sole trader can be beneficial in more ways than one: you have the opportunity for simplified accounting, tax-free childcare and full control over your business. But is being a sole trader the best option for you? Are you missing out on the perks of running a limited company?

In the financial year 2015-2016, there were approximately 26,255 Research and Development (R+D) tax credit claims in the UK. In total, these companies claimed close to £2.9 billion of support in 2015-2016 alone.

The definition of research and development in relation to R+D tax relief is very prescriptive; however, it’s not necessarily as narrow as you might think. It doesn’t just encompass “whitecoat” scientific research but extends to creating or improving processes, products or services across a broad range of disciplines and professions. The key element is that the project seeks to improve or extend existing knowledge in science or technology, whether the project is successful or not - sometimes our greatest learning comes from failure and the government recognises this. To learn more about R+D tax relief, watch our R+D tax credits video.

R+D tax relief is available for companies undertaking innovative projects relating to science or technology. So, if you’re working on a project that aims to make a positive impact in the fields of technology and science, you may be eligible to make a claim, on one condition: R+D tax relief only applies to limited companies.


Case Study- A Sole Trader

About a year ago, we met with an engineer who had lots of innovative ideas. We were the third accountants he had seen and, in our view, most of his various projects would have been fully claimable as R+D projects. The other two accountants he had previously visited had advised him to set up as a sole trader, which is the standard advice given to new business owners because running a business as a sole trader is cheaper than running a limited company.

But, in this case, it was the wrong advice. We explained how R+D corporation tax credits work – where HMRC reimburses your organisation for the funds you have invested into R+D – but that the scheme is only available for limited companies and not sole traders.

Although this man did not become a client of Oaktree – he took a PAYE role instead of setting up a business – if he had set up as a sole trader, it would probably have left him at least £10,000 worse off in his first two years’ trading than if he had formed a limited company.

So, if you are setting up a business, the lesson to learn here is to consider the legal status of the business carefully and to seek out good advice.


Is your company eligible for R+D Tax Credits?

You may not have thought about whether your company can claim R&D tax credits and think you won’t be eligible for work already done. However, if your company has been undertaking qualifying R&D and has not yet claimed, we could help you make a backdated claim for work up to two years after submission

Things to consider
• Does my company have a project?
• Is the project in the field of science or technology?
• Would the project advance or extend the overall knowledge in the field of science or technology and not just the company’s knowledge?
• Does the project involve an uncertainty that competent professionals can’t readily resolve and where solutions aren’t common knowledge?

We have helped many companies recognise the R+D work they do as part of their business. We make it our business to get to know your business. We make no charge for our services until a claim is successful and you receive the tax credit from HMRC. But don’t just take our word for it. As a result of our work on their behalf, our clients are delighted with the financial boost tax credits give their companies and are happy to share their stories as testimonials.


Let's Talk

If you want to check if your company is eligible to apply for R+D Tax Credits, take our quick quiz or call us on  01900 268086 or 07889 181080.

We’d be pleased to talk to you about how our strictly fixed price accountancy can help your business claim R+D tax relief so you can boost your business success.



Monday 11 June 2018