KTP and R&D Tax Credits

How does using a KTP Associate on your R&D projects affect your ability to claim R&D tax relief?

Published/updated:

30 January 2020

two people looking for solution

More and more companies are discovering that with a little help from schemes such as Knowledge Transfer Partnerships (KTP) and R&D tax relief, they can realise the full potential of R&D opportunities to create innovative products and services that will help their business grow. Here's how...

KTP FOR BUSINESSES

Taking part in a KTP can help you develop your business. It can help you get the academic expertise that you don't have in-house. This expertise can help your business perform better and become more competitive and productive.

Each KTP is a three-way partnership between a business, an academic institution and a graduate. The academic institution employs the recently-qualified graduate who works at the company. The graduate, known as the 'associate', brings new skills and knowledge to the business.

A KTP can last between 12 and 36 months depending on the project and the needs of the business. It is part-funded by a grant. The amount businesses need to contribute is different for SMEs and larger companies.

As well as securing up to 67% of grant funding for your partnership projects, KTP could also make your business eligible for R&D tax relief, which introduces the second of our dynamic duo.

R&D TAX RELIEF

Perhaps you need a cash flow injection to reinvest in projects to further develop your business? Using R&D tax relief can make using University expertise to carry out a research project, more affordable.

The UK government introduced R&D tax relief as a way to encourage greater R&D spending to promote investment in innovation. It can either reduce a company's tax bill or in some cases provide a cash sum.

The rate of R&D tax relief is different for SMEs and Large Companies. The SME scheme is very generous whereas the RDEC Scheme is significantly less so.

Regardless, it is a worthwhile exercise: for every £100 of qualifying R&D expenditure, relief is available at £25.00 for profit-making SMEs and £33.35 for loss-making SMEs. While for Large Companies for every £100 of qualifying R&D expenditure, relief is available at £9.70.

To qualify for this benefit your company or organisation must be able to demonstrate to HMRC that the product or service you're planning to include in your claim is truly innovative and, at a technological level, an advance on what's currently available in the market.

HOW COULD A KTP IMPACT ON MY ABILITY TO CLAIM R&D TAX RELIEF?

Good news - you can claim R&D tax relief whilst taking part in a KTP... provided you're eligible of course!

There are, however, a few things to consider when claiming:

IS A KTP REGARDED AS A STATE AID?
KTP is NOT classed as a notified state aid, so has no bearing on the company contributions (Receiving Notified State Aid prohibits a company from claiming R&D relief for a project under the SME scheme).

WHAT ASPECTS OF THE KPT CAN I INCLUDE IN MY R&D TAX RELIEF CLAIM?
Your company effectively pays the University (i.e the KTP provider) for the provision of the Associate's time over the period of the project. Therefore, you can claim their contributions to the University as an Externally Provided Worker from an unconnected staff provider. This cost is restricted to 65% of payments. So as the KTP Associate typically works on on R&D activities, your company can claim all the KTP costs you pay to the University.

For an SME this would lead to and R&D Tax Credit of between 25% - 33.35% (or up to £3.3k per £10k of contributions); for a large company 9.7% (or up to £970 per £10k of contributions).

SOME KTP ARE ASSOCIATED WITH INNOVATE UK GRANTS - HOW WILL THIS AFFECT MY ABILITY TO CLAIM R&D TAX RELIEF ON THE PROJECT?
A KTP is part-funded by a grant.

Innovate UK grants are notifiable state aid and so could knock the project into the (less beneficial) RDEC Scheme. However, this is dependent on the exact nature of the grant, the project and the agreements you have in place, so this would need to be assessed on a case-by-case basis - speak to ABGI!

WHICH KTP COSTS CAN BE OFFSET AS QUALIFYING R&D TAX CREDIT EXPENDITURE?
The total budget (including company contributions) covers:

  • Salary of the KTP associate;
  • The time and expertise of the academic supervisor;
  • Equipment and travel costs;
  • Costs of the associate's training and development;
  • Administrative support;
  • Materials;
  • Company staff time.

You can claim payment to the staff provider (i.e. University), which will cover the above costs.

Case Studies

One of the several companies who've accepted a helping hand from both organisation and reaped significant rewards as a result is Clyde Space. Commenting on his experience of working with both, Craig Clark, CEO of the award-winning supplier of small and micro spacecraft systems, says:

On KTP

"We were considered one of the world's most innovative companies in the field of space sub-systems but we wanted to move up the value chain, building our own satellites. KTP has allowed us to do that, tapping into knowledge and opening doors to all sorts of other activities."

On R&D tax relief

"Although we were clearly doing R&D we were being advised by people who didn't understand the company and didn't understand the potential. After working with the consultants at ABGI we recovered more than £60,000 from HMRC... and are now working with them on further R&D tax credit submissions."

NEXT STEPS

R&D tax relief can be complex and time consuming, but if you choose the most appropriate approach and advisor it can be highly worth your time, but consider your options carefully.

ABGI is on of the world's leading tax incentive and innovation management advisers. With a 30+ year heritage and 200 experts & advisers we manage +£1 billion of global tax incentives annually for a broad range of clients including some of the world's best-known brands.

Our aim is to help clients accelerate and fund their innovations. We operate on the entire value chain of innovation through our multidisciplinary international teams.

We specialise in helping companies who are looking to optimise their claim. experience a better service or pay a more competitive price - this leads to maximised, robust and defendable claims, reducing risks, time and effort for you.

Whatever innovation funding challenges you face, in the UK of internationally, we can help.

FOR A FREE R&D TAX CREDIT CONSULTATION AND ANALYSIS OF THE POTENTIAL RETURN YOU MIGHT EXPECT FROM YOUR PROJECTS, CONTACT THE ABGI-UK TEAM

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