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.
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:
- Professional Services
- 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.
SMEs can claim up to 33p tax back for every £1 spent on qualifying R&D activities.
Large companies can claim up to 12p for every £1 spent on qualifying R&D activities.
Please note that If a company receives a non-project specific grant which is Notified State Aid then it cannot claim for any relief under the SME scheme.
SMEs that are considering applying for a grant which is Notified State Aid, should ensure their grant application is for a specific project, so that any other R&D projects undertaken remain eligible for SME relief.
Calculating the claim
The amount of relief a business receives depends on its R&D spend and a number of other factors.
In order to calculate the R&D tax credit, a business will need to identify qualifying expenditure and look at the relevant rate for the business in order to create a calculation for your enhanced expenditure.
The actual amount of enhanced expenditure claimed under the R&D tax credit scheme is an additional 130 per cent of the qualifying costs, so 230 per cent in total.
When you deduct your enhanced 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.
Businesses should be aware that expenditure is only enhanced under the SME scheme but not RDEC.
When submitting an R&D tax credit claim there is a wide variety of expenditure that can be covered, including:
- Subcontracted R&D
- Externally Provided Workers (EPWs)
- Consumable items
Exactly what expenditure may qualify for tax relief takes careful consideration and it is recommended that you seek professional advice before calculating a claim.
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.