We’re seeing more and more companies collaborating with universities through KTPs (Knowledge Transfer Partnership) allowing academics to exchange skills and research with entrepreneurs. When it comes to claiming R&D tax credits, KTPs can be somewhat confusing.
How arrangements between a University and a business work under a KTP scheme
When a company and a university work together under a KTP arrangement, the university typically appoints one or more Ph.D. students, or research associates, to work on the relevant R&D project with the company.
The company pays the university a proportion of the team's salary – typically between 30 and 70 percent of the costs. The remaining costs are state-funded, which means the university gets paid directly by the government.
Because the payment of the university costs is partly state-funded, businesses often believe this disqualifies them from claiming R&D tax credits under the SME scheme.
Fortunately, this is not the case.
Claim under the SME scheme
In a KTP arrangement, the company is not in receipt of any state aid, meaning all the company sees is an invoice from the university which is then settled by the company. The university gets paid directly from the government, and so, the business is not directly in receipt of any state aid. This means R&D tax credits can be claimed under the SME scheme.
What can I claim when making an R&D tax credits claim?
For claim purposes, the payments to the university are treated as payments towards an ‘Externally Provided Worker’. This means that for every £1,000 paid to the university, the business can claim up to 65 percent (£650) as qualifying expenses in their respective R&D tax credits claim.
How do I increase the value of my R&D claim?
The good news is that the business is able to increase the value of their R&D tax credits claims.
As long as the university provides and discloses a detailed analysis of the actual salary costs incurred, and both parties agree to be treated as ‘connected’, then the company can recover the full amount of the invoice as qualifying costs in their R&D tax credits claim.
The company needs to simply have a letter in place, signed by both parties, and elect to be connected.
Breaking down the numbers
Here's an example.
Let’s assume that a loss-making SME company and a university are working together under a KTP arrangement. The company will pay £50,000 to the university towards salary costs for a Research Associate working on an R&D project.
The university will pay the other £30,000 using state-funded government money.
Claiming R&D tax credits as a normal ‘externally provided worker’
In the absence of a ‘joint-election’ arrangement, the company will claim 65 percent of the £50,000 as qualifying costs in their R&D tax credits claim (£32,500). This would result in a claim of £10,838.75.
Claiming R&D tax credits as a ‘connected-party’
Should the university and company elect to be connected with each other, then the full £50,000 can be claimed as qualifying expenses. This would result in a claim worth £16,675.00.
By getting the university to collaborate with the company, the business can increase its R&D claim by 53.8 percent.
It’s important to understand the nature of any arrangements between a company and a university, in regards to state funding. By carefully considering all parties, a company can increase its R&D tax credits claim by over 50 percent.
Make the most of your R&D tax credit claims
At RDvault, our platform helps companies identify eligible opportunities and increase the value of claims. We provide open and honest advice about how we can help you make the most of your R&D tax claims. Simply put, we put you first. Get in touch today and let’s chat.
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