Law firms missing out on R&D Tax relief

New figures show that law firms are overlooking the government incentive, with nearly 9 in 10 law firms eligible.

Thousands of law firms could be missing out on potential tax savings in the form of R&D tax relief, new research has found. Figures suggest that the majority of businesses in the legal sector have developed new products or businesses processes in the past two years.

The R&D figures for law firms

The research shows that an incredible 87% of businesses in the legal sector could be eligible for the R&D tax relief, an incentive the government provides to promote innovation.

A Censuswide survey of 1,000 senior and middle managers in law firms across the country found that 80% of firms had heard about the tax incentive, with only half (47%) ever claiming. The reasons given were that they either believed they did not qualify, or they mistakenly believed it would cost them money to put in a claim.

The law firm execs also vastly underestimated the true value of an R&D tax claim. Across the 1,000 surveyed, the average SME R&D tax relief claim they believed to be true was just under £17,000.

They were, in fact, nearly £30,000 off, with the average claim for their sector being approximately £46,000.

Samantha Holloway, CEO of rdtaxcredit.org.uk, commented:

What we are seeing here is a misunderstanding by law firms on two counts. The first being those legal businesses who believe they don’t qualify for R&D tax, full stop. The second is related to those who realise they do qualify, but grossly miscalculate what is actually owed to them.

This leads to law firms and legal businesses up and down the country missing out on a tax relief that is owed to them – a tax relief that the government actually encourages.

It would appear many law firms are overlooking this legitimate financial reward for their valuable investment within the legal industry, simply through a lack of education.

To remedy that, we can explain exactly what R&D tax credits are.

What are R&D tax credits?

R&D tax credits, or Research and Development tax credits, are a tax relief designed to encourage investment in research, development and innovation across the UK. They work by reducing a company’s tax bill by a certain percentage of qualifying R&D expenditure, or by a payment in cash, again linked to qualifying R&D spend.

The tax relief was implemented in 2000 by the UK Government, and since then a staggering £21.4bn has been claimed by companies across the country, in the form of 240,000 claims.

Reports suggest that the average claim for UK SMEs for R&D tax relief hovers around £43,000 – £62,000. The claim can be backdated by up to three years, meaning if your legal business has already taken part in research and development, you could be sitting on extra cash.

In addition to this, the R&D does not necessarily have to have been successful to qualify, which is an area companies are often mistaken on.

R&D tax credits are championed by the government, with Chancellor Phillip Hammond announcing in the most recent budget the government’s pledge to raise the total R&D investment to 2.4% of GDP by 2027. The Budget report also touted an extra £1.6bn for its modern industrial strategy. All of this should put the tax relief in the forefront of company owners’, and law firms’, minds.

What counts as research and development?

If you are law firm and answer yes to any of these questions, you are carrying act activities that count as R&D. Do you:

• Carry out research and development in the field of technology or science?
• Develop or design a project that overcomes difficult technological problems?
• Create new processes, products or services?
• Make improvements to existing processes, products or services?
• Use emerging technology to reinvent processes, products or services?

An advancement of overall knowledge

However, sometimes simply developing new products is not enough in the field of R&D tax. Also ask yourself these qualifying questions:

• Does the advance extend the overall knowledge or capability in the field of science or technology and not just the law firm’s own state of knowledge or capability?
• Does the project involve an uncertainty that competent legal professionals cannot readily resolve and where solutions are not common knowledge?

Examples of successful R&D tax claims can be projects involving the adaption of premises and software development, automation of admin, website rebuilds, and the adoption of emerging technologies within their workforce.

In addition to this, in order to claim the SME R&D tax fund, you will need to ask yourself, is your law firm an SME?

Definition of an “SME”:

• Less than 500 Staff
• Annual turnover not exceeding €100m or an annual balance sheet figure not exceeding €86m

If this sounds like your legal business, and you have answered yes to the above questions, we are highly confident that you could be entitled to a share of the £21.4bn that has already been claimed by companies in the UK.

How can RDTaxCredit.org.uk help?

RDTaxCredit.org.uk are able to help law firms across the country claim R&D relief, leaving them with more cash to re-invest into their legal business. We have of experience in helping law firms quantify how much their claim could be worth, investigating the actual work to see if it is eligible, while also helping and advising on the claims process.

Our team of Chartered Tax Advisers can ensure you have a robust claim that identifies qualifying R&D and the associated costs. We can assist in the preparation of the R&D claims and submission of the claim to HM Revenue & Customs.

We handle the R&D Claim from start to finish and we produce the technical report on your behalf that helps R&D Tax inspectors understand your work and approve the claim.

At rdtaxcredit.org.uk, we understand that beginning to think about claiming R&D Tax Credits may be a little daunting, especially if you have never claimed the tax before. We want to help you through the process, to ensure you receive the financial reward that the Government wants to give you.

We offer a friendly and professional approach to R&D Tax Credits which includes:

• A free no obligation initial review
• 100% success rate
• 30 day quick turnaround

If you would like to contact one of our experts for free initial advice, complete the quick enquiry form to receive a no-obligation review of your R&D Tax Relief claim.