Tax relief for research and development (R&D) is an incentive designed to encourage companies to invest in the creation of innovative processes and products.
These tax credits are a valuable, if underutilised, source of support to help businesses invest in R&D, hire new talent and grow.
According to the latest data, more than 50,000 claims are made each year, totalling more than £5.1 billion in tax relief and credits, but many more thousands of pounds could be available to businesses.
By making sure you use your full tax entitlement, we can help save you time and money, both now and in the future.
We will work closely with you to submit a claim compliant with HMRC’s requirements, to ensure you have the best chance of obtaining the tax relief you are entitled to.
Eligibility
To benefit from R&D tax credits, you must:
- Be a UK limited company that is subject to Corporation Tax.
- Have completed qualifying research and development activities.
- Have spent money on an eligible project.
- Have incurred qualifying expenditure.
Work that qualifies for R&D relief must be part of a specific project to make an advance in science or technology.
To claim R&D tax relief you will need to demonstrate that the project:
- looked for an advance in science and technology
- had to overcome uncertainty
- tried to overcome this uncertainty
- could not be easily worked out by a professional in the field
This could include the creation of a new process, product or service or deliver improvements to existing ones.
Claiming R&D tax credits against these developments provides either a reduction to Corporation Tax or cash if the development leads to a loss.
Unfortunately, there is a perception that this relief is only on offer to those working in high-tech sectors, but this couldn’t be further from the truth.
In fact, this initiative is open to businesses in almost every sector as long as they can prove they have made an advancement. HMRC have received successful claims in several sectors including:
- Charities
- Professional Services
- Retailers
- Waste Management and Recycling
- Web Design.
Within the scheme’s accepted research and development definition, R&D doesn’t even have to have been successful to qualify and you can also include work undertaken for a client.
To find out if your latest developments may be eligible, please contact us today.
Which R&D tax credit scheme is best for you?
Depending on whether you are a small to medium-sized enterprise (SME) or large company, the scheme that you apply for can differ.
The scheme classifies a business as an SME if it has fewer than 500 staff and either not more than €100 million turnover or €86 million gross assets.
Any business with more than 500 members of staff and either more than €100 million turnover or €86 million gross assets is classed as a large business.
SMEs must apply for the SME R&D tax credit scheme, while large companies can apply for Research and Development Expenditure Credit (RDEC) – although where an SME works alongside a large company on R&D, they may be able to claim Research and Development Expenditure Credit or even both schemes.
Calculating the claim
The amount of relief a business receives depends on its R&D spend and a number of other factors.
When you deduct your expenditure from your taxable profits or add it to your loss, it will result in one of three outcomes:
• a Corporation Tax reduction if you are profit-making
• a cash credit if you are loss-making
• or a combination of the two.
To calculate the R&D tax relief available, a business will need to identify qualifying expenditure and look at the relevant rate for the business to create a calculation.
The actual amount of tax relief claimed under the R&D tax credit scheme is as follows from April 2023:
- SME Scheme – 86 per cent on qualifying expenditure + 100 per cent normal reduction on costs
- SME Tax Credit Rate for loss-making businesses – 10 per cent (unless 40 per cent of an SME’s expenditure is R&D – these businesses benefit from a 14.5 per cent rate)
- RDEC Rate – 20 per cent
Businesses should be aware that expenditure is only enhanced under the SME scheme but not RDEC.
Qualifying expenditure
When submitting an R&D tax credit claim there is a wide variety of expenditure that can be covered, including:
- Employment
- Subcontracted R&D
- Externally Provided Workers (EPWs)
- Consumable items
- Software
Exactly what expenditure may qualify for tax relief takes careful consideration and it is recommended that you seek professional advice before calculating a claim.
Want to access funding sooner? We can help
We work with Capitalise, a lender that can help businesses to start using their R&D tax claim up to 18 months in advance!
R&D Lending with Capitalise gives you access to funds that are tied up in your R&D tax relief claim before HMRC releases your funds.
In some cases, there may even be the option to access the current year of R&D expenditure in advance of the submission being made.
Capitalise allow you to do this by way of a loan secured against future repayment from your claim, therefore, improving your cash flow and ability to accelerate a business’s R&D spend.
Are you eligible for R&D lending?
All UK companies that are loss-making and have an R&D spend over £50,000 a year on R&D could be eligible for using this type of funding.
With a typical R&D Tax Credit of £125,000, Capitalise might be able to lend up to £100,000 to be repaid within 180 days of the loan facility being taken out and all for an initial fee equal to three per cent of the loan and an interest rate of 1.25 per cent per month.
How the cash flow works:
In this example:
- You receive £97,000 from the lender
- The lender receives £125,000 from HMRC
- The lender returns £17,500 to the company within 24 hours
If you think R&D lending is right for you, why not ask us about the benefits of a Capitalise loan?
Working with an advisor you trust
We process lots of R&D tax credit claims every year and have been doing so for more than a decade.
In the last year alone, we helped businesses to claim back over £3 million!
When handling a claim, we take time to understand your project and the team behind it so we can accurately calculate the amount of tax relief or credit you are eligible for – ensuring you make the most of what this scheme has to offer.