The average claim value that Research & Development (R&D) tax credits provided in 2020 was £63,000. You can use these credits to reduce your tax bill, increase your taxable losses, or get it paid to you in cash.
What are R&D tax credits?
R&D tax credits are an incentive designed to reward companies engaging in innovation. They can provide valuable funding for any company spending money on developing new products, processes or improving existing ones.
The relief gives your business the opportunity to claim back a proportion of your R&D expenditure as tax credits, which would reduce your tax bill or increase taxable losses. R&D tax credits are not sector specific, if you are spending money on research and development, you could be eligible to claim.
Is your company eligible?
Without an R&D program companies may struggle to thrive within their market relying on mergers and acquisitions in order to innovate. The R&D Tax Credit scheme was designed to empower businesses to innovate, providing funding to release their next idea or improve existing products.
To qualify a business must meet the following conditions;
- A limited company in the UK subject to Corporation Tax
- Carried out qualifying research and development activities
- Have spent money on R&D projects
What counts as R&D?
You can claim R&D relief on revenue expenditure such as day-to-day operational costs, but not capital expenditure (money spent on fixed assets such as land or buildings). Below are some key areas which you can include in your claim:
- Staff costs – employees who have worked directly on the project. This includes wages, overtime and cash bonuses, employer NI contributions, employer pension contributions and certain business expenses. Independent contractors and/or subcontractors can also be included but there are rules around what can be included.
- Software – software which was needed or involved in R&D activities may be included but must have been developed or purchased for the project. General software such as email hosting, Microsoft Office, ERP and MRP and hosting are excluded.
- Consumables – Materials and resources that are consumed in your R&D process, such as water, fuel and power can be included in your claim. You can’t claim for materials which were not used in the R&D process or for products which were sold onto a client.
- Subcontracted R&D – If a portion of your R&D project has been outsourced to another company for an agreed amount, you can include that in your claim. Companies can claim up to 65% of their subcontracted costs, but only under the SME scheme.
- Clinical volunteers – Usually only relevant to pharmaceutical firms, the payments made to volunteers in clinical trials are eligible.
R&D Schemes Available
There are two schemes available, the main difference being the size of your business, the amount of Corporation Tax you are paying and whether you are making a profit or loss.
SME R&D tax credits
If you employ less than 500 employees and have a turnover not exceeding €100m or a balance sheet less than €86m, you qualify for the SME R&D tax credit scheme. This scheme gives businesses the opportunity to offset up to 33% of your R&D costs against your Corporation Tax, in some cases you can receive this as a cash credit from HMRC.
There are a couple of factors that can affect your claim as an SME, if you are in receipt of grants, subsidies, state aid, or using subcontractors then you may need to make a claim via the RDEC (Research and Development Expenditure) scheme. If your headcount is lower than 500 but you exceed both the turnover and gross asset thresholds, you would be classed as a large company and be assigned to the RDEC scheme.
Our team will point you in the right direction here.
Research and Development Expenditure (RDEC) scheme
The RDEC scheme is for companies with more than 500 employees, revenues over €100m, and a balance sheet of more than €86m. The level of tax relief can be around 12% of the money spent on R&D.
As with the SME scheme the credit can be offset against your tax liability or paid to you in cash.
Use our R&D tax calculator to estimate the amount you could receive from making a claim. Simply enter your estimated R&D spend into the box or using the slider and click calculate.
Our R&D claim process
Our highly experienced team have specialised in R&D tax credit claims since they were introduced in 2000. We have claimed millions for our clients to help them build even better businesses.
Our team will handle your claim from start to finish, we offer a free review to see if you are eligible to claim, and give you an estimate of what you would expect to receive. We then gather the data we need from yourself, put this into a technical report suitable for HMRC and manage the claim direct with them on your behalf.
We work on a fixed fee basis so there’s no surprises once your claim is complete.
Our quick check tells you if you can make a claim, click here to find out.
To arrange a call with one of our R&D specialists, click here, or call them on 0161 832 6221.