Woodshires is a team of specialist consultants in tax and funding for businesses and business owners. In this months’ article, Woodshires discuss R&D (research and development) tax credits and what it could mean for you and your practice.
R&D tax credits
R&D for businesses can be attributed to many activities. To put it simply, if your business has been or is developing or adapting a new or existing idea, system or product, then the time and costs incurred could qualify for the R&D tax credit.
Could dental businesses claim the tax credit? To be eligible to claim, a business has to be a UK limited company with at least one employee with a tax and national insurance liability. Partnerships and individuals are not eligible.
To qualify, the business has to have reported R&D activity. This is where it gets interesting, as most business owners and professional support services do not understand where R&D activity is within a business. This is because nine times out of 10, it is just what they do in their day-to-day activities, but do not see it as anything other than their daily work!
To explain this complex relief as simply as possible, R&D is where a business is solving an uncertainty and cannot solve that problem by buying an existing and readily available solution. The items a business cannot claim for is the written word, image, or method.
If you are adapting or creating an individual product or combining multiple products together to solve a problem (even if you are paying another party to do it for you) then an element, if not all of the time and costs incurred are eligible. Products and software developments are the most common areas looked at.
What is this tax credit worth?
R&D tax credit gives an additional uplift of up to 130% of all relevant costs. This is to offset against your company’s tax position and can create a cash refund – even for a loss making business. The average refund is in excess of £50,000 and does not affect the profit and loss position of your business as this allowance is against tax.
The tax credit is made available either as a tax deduction based on R&D costs or it may be surrendered for a cash tax credit. Claims may be made to adjust and recover R&D costs for up to two immediate past accountancy periods.
Surely your accountant is claiming this for you, you may ask. Accountants will be rightly claiming as much as they can. However, to gain the correct and full additional uplifts, a specialist report has to be written that clearly analyses all of the qualifying activities both in time and costs. Generally, this is where an accountant will ask the business owner to complete and write down all qualifying R&D expenditure. However, when a business is unsure where all their R&D is, our specialists complete all relevant information in a format that the HMRC are happy with and most importantly, all of it.
R&D is a very useful Tax Relief but is one of 14 Woodshires specialise in, so it is always good to talk and help where we can.
Practice Location - established approximately 20 years ago, this practice was acquired by the current principal in 1999. It is located within a converted residential property with free on-road parking in a large city in the Midlands.
Type of Practice - this NHS practice has eight surgeries, one of which is used by a hygienist. The outgoing principal owned the freehold valued at c.£450,000 and was open to options with regards selling the freehold or leasing the premises to an incoming buyer.
Financials - the practice holds an NHS contract with a value of £1,350,000 for the provision of 44,000 UDAs, representing an excellent UDA rate of £30.68. In addition to the NHS turnover, a small amount of private fee-per-item income is generated by the hygienist.
Buyer Appetite - due to the size and desirability of the practice it was marketed to our premier tier buyers, with corporate purchasers showing particular interest. A large amount of specialist work was being referred out of the practice and this presented an opportunity for the incoming buyer to provide in-house specialist treatments, thus driving growth through private income.
Reason for Sale / Incoming Purchaser - the outgoing principal was looking for eventual retirement but was happy to continue at the practice for a period of time. As the practice was purchased by a corporate, agreeable associate terms were negotiated with the outgoing principal to ensure the continuity of turnover post-sale. The sale took eight months from marketing to completion.
Price Achieved - £2,950,000 inclusive of goodwill, equipment, fixtures and fittings, with the freehold retained by the outgoing principal.
Practice Location - this practice was established over 80 years ago and is located in a popular town within the home counties. The practice is centrally positioned in the town centre, which helps to attract footfall and is easily accessible with a pay and display car-park to the rear.
Type of Practice - this expense sharing, mixed practice has three surgeries; one owned by each partner and the third surgery occupied by a shared associate. There is significant potential for an incoming buyer to maximise chair time and drive income growth. The premises, a converted residential property, are to be transferred on a leasehold basis.
Financials - the annual turnover of £306,000 is made up of £61,000 fee-per-item income and £245,000 NHS income for 10,500 UDAs. The majority of work was being completed by the principal, with the associate contributing 25% of the UDAs.
Buyer Appetite - the practice was marketed to our general tier buyers, which generated a good level of interest with 1,170 web views, 719 individuals receiving full sales particulars and 15 prospective purchasers attending viewings.
Reason for Sale / Incoming Purchaser - the current principal was looking to relocate and so wanted a clean break from the practice on completion. This suited the incoming buyer who was purchasing their first practice and looking to work within the outgoing principal’s surgery full time.
Price Achieved - £490,000 inclusive of goodwill, equipment, fixtures and fittings.
Practice Location - located within, Wales this traditional practice has been operating since the 1970s, and was purchased by the current principal 20 years ago. The practice is located within a busy town centre and is easily accessible for patients with free parking immediately outside.
Type of Practice - this is a two-surgery, mainly NHS practice located within a converted residential terraced property. The premises comprise two floors with plenty of expansion space to add an additional surgery, which could be occupied by a new associate or specialist. There is a significant amount of orthodontic work being referred out of the practice, which could be provided on-site from a third surgery if the expansion was carried out. The freehold, valued at £130,000, was included within the sale.
Financials - turnover is stable year-on-year at £503,000 with 97.5% income generated from a GDS NHS contract for 19,000 UDAs.
Buyer Appetite - this practice matched to the buying specs of 437 individuals registered as buyers with Mediestates. Numerous offers were received with the vendor accepting an offer from one of our priority tier buyers.
Reason for sale / Incoming Purchaser - the vendor was looking to retire and was happy to continue working at the practice post-sale. This suited the incoming buyer who was purchasing as an investment opportunity to increase their small portfolio of dental practices. The transaction took six months from marketing to completion.
Price Achieved - £765,000 inclusive of goodwill, equipment, fixtures and fittings, with the freehold of £130,000 in addition.