Open new doors with R&D tax credits – make a claim today
Up to £84 billion of R&D tax relief is believed to have gone unclaimed in the UK according to figures from the Treasury – with up to 80% of eligible businesses not having made a claim.
This represents a significant missed opportunity for businesses, who could use the tax relief to revolutionise the financial outlook of their operations by implementing and developing new innovations.
With so much on offer, is your business missing out on this generous tax credits scheme?
Download our R&D guide
What are R&D tax credits?
Research and development (R&D) tax credits were launched by the Government to reward companies in the UK that invest in innovation.
These tax credits are a valuable and underutilised source of support to help businesses invest in R&D, hire new talent and grow.
How do they work?
A company will usually be eligible for R&D tax credits if it has:
Claiming R&D tax credits against these developments provides either a reduction to Corporation Tax or a payable tax cash credit if your company is loss-making.
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 a technological or scientific advancement in their given industry or field. HMRC have received successful claims in several sectors including:
Charity trading subsidiaries
Professional Services – e.g. Solicitors
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.
Am I eligible for R&D tax credits?
In order 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.
Which R&D tax credit scheme is for me?
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 will usually 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.
Please note that if a company receives a non-project specific grant which is Notified State Aid then it cannot claim for relief under the SME scheme on the R&D project(s) that this notified state aid goes towards. 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.
Please note, Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS) are notified state aid and if you have been in receipt of these then it could affect your ability to claim through the SME R&D scheme.
This can be an important area of planning and advice should be sought if you have received or are planning on receiving notified state aid.
What’s the difference?
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% of the qualifying costs, so 230% 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.
What costs qualify for R&D tax credits?
When submitting an R&D tax credit claim there is a wide variety of expenditure that can be covered. To help you make the most of this incentive please click on the headings below.
SMEs and large companies can claim Employment costs, such as:
- Gross salaries (including wages, overtime pay and cash bonuses);
- Employer NI contributions;
- Employer pension contributions; and
- Certain reimbursed business expenses.
However, benefits in kind, such as health insurance or a company vehicle are excluded as are director dividends.
Employees rarely spend all their time on R&D, so you will need to determine the appropriate apportionment of staffing costs to include in your R&D claim.
You may be able to include the cost of subcontracted R&D work, however, the amount and what can be claimed differs between the Research and Development Expenditure Credit (RDEC) scheme and the SME R&D tax credit scheme.
For example, if you are making an SME claim, you can include 65 per cent of payments made to unconnected parties.
The rules in relation to Subcontracted R&D are complex so it is best to seek advice in advance.
Externally Provided Workers (EPWs)
Externally provided workers (EPWs) such as agency staff, contractors, and freelancer that are brought into the team to support with R&D are allowable expenditure.
However, they must work under the supervision, direction, or control of the company claiming credits.
if you are making an SME claim, you can include 65 per cent of payments made to unconnected EPWs.
The rules in relation to EPWs can be complex so it is best to seek advice in advance.
Materials that are consumed or transformed in your R&D process are defined as consumables and can include basics such as water, fuel, and power.
Other consumables allowed to be claimed relate to material costs in developing prototypes that are later destroyed or never sold.
Once your work to resolve the technological or scientific uncertainty is completed any additional costs for consumables that could be involved in further development or marketing should not be included in a claim.
Expenditure on computer software involved directly in R&D activities may be included, as can software partly used for R&D – at a reasonable apportionment.
Should I make a claim?
We often get asked whether businesses should make an investment in hopes that they can claim relief afterwards.
Thankfully, we can seek out advanced assurances from HM Revenue & Customs to ensure that if you meet the original brief for your project you are likely to receive the full benefit from this fantastic incentive.
What’s more, as this credit applies to the two previous accounting periods, if you have already completed work in the last couple of years you may still be eligible to apply, so why not get in contact to see if we can help.
Still not sure, here is how our clients have benefitted from our advice:
Security intelligence services company:
During the important start-up growth phase of this company our R&D team were able to assist in making a claim for over £100,000 in payable cash credit for the company.
Due to the nature of the company’s ongoing R&D in this field they have been able to make similar claims each financial year assisting them in continuing to make advances in their industry.
Simulation Technology company:
We were able to assist this client in saving over £35,000 in Corporation tax in relation to qualifying R&D work they has been carrying out in the area of simulation software development.
Again due to the ongoing nature of this R&D, the company will likely continue to have qualifying R&D projects and related tax relief in future years to come.
Aircraft manufacturing company:
We were able to assist this company in receiving a Corporation tax saving of £149,000 in relation to qualifying R&D projects they were carrying out in the area of appreciable improving manufacturing processes and developing new manufacturing processes for aircraft.
How we can help
Our team, led by R&D tax specialist Matt Bain, have an exceptional record for helping firms of all sizes and sectors make successful R&D tax credit claims.
By seeking out professional advice and support you can remove the stress of making a claim and significantly improve your chances of success.
To find out how we can help you make a claim, why not speak to our dedicated R&D tax team today.