If you are a UK company that has invested in innovation, you could be eligible for R&D tax credits.
What are R&D Tax Credits?
Companies in the UK are able to claim tax relief for their R&D activity. The scheme is administered by HMRC and is intended to support businesses with their products and processes by boosting innovation. If you are spending money on your innovation, you can make a Research and Development tax credit claim.
Whether you are a large company or a small business there could be an R&D solution for your company.
For small and medium enterprises (SMEs) the incentive is Corporation Tax relief that can reduce a company’s tax bill or result in a payable tax credit (SME R&D Relief Scheme).
For large companies, the incentive is the R&D Expenditure Credit (RDEC).
Eligibility for R&D Tax Relief
The business must:
- Be a limited company in the UK that is subject to Corporation Tax
- Have carried out qualifying research and development activities
- Have spent money on these projects
R&D Tax Credits for Small Business
The Small and medium-sized enterprises (SME) R&D Relief can be claimed if you are an SME with:
- Less than 500 staff
- A turnover of under 100 million euros or a balance sheet under 86 million euros
Many companies, including start-ups, fall within this category.
What counts as Research & Development?
The project must be specific to make an advance in science or technology and must relate to the company’s trade. The company must be taking a risk by attempting to solve scientific or technological uncertainty. This can include creating new products, processes or services or changing or modifying an existing product, process, or service. It is important to note that the R&D doesn’t have to have been successful to qualify but the project should have set out to make an advance.
Research and Development can be in any sector from food processing to mechanical engineering, construction and information technology.
What costs qualify for R&D Tax Relief
The key qualifying costs are:
- Staff costs – apportioned to the time spent on the R&D project (salary, NIC, employer pension)
- Software – any software purchased for R&R purposes and apportioned to the project if used subsequently
- Subcontracting R&D costs – claims can be made for 65% paid to a subcontractor
- Utilities & Consumables – water, fuel, power, and material used for the project
- Prototypes – all R&D prototypes
How much can a company claim?
If this is the first claim a company has made the claim can cover the last 2 accounting periods. All subsequent claims can be made annually.
Claims can be worth up to 33% of the total R&D costs providing the criteria for R&D Tax Credits have been met.
How will the claim be paid?
Under the scheme, the R&D tax credit reduces the company’s taxable profit. If the company recorded a profit for the period, it is claiming R&D expenditure, the overall Corporation Tax due will be reduced by the amount of tax relief awarded.
If the company is making a loss, it may be able to claim a cash credit.
Depending on whether the company is profit-making or loss-making will determine how the R&D tax credit is paid.