Research and Development Tax Credits

What Are Research & Development (R&D) Tax Credits?

Introduced in 2000 and pledged to run until 2032, the Research and Development (R&D) Tax Credit scheme is part of an EU-supported initiative to promote innovation across the UK and Europe. R&D tax credits enable companies that incur costs in developing new products, processes or services to receive a cash payment or tax deduction.

Research and Development
R&D Tax Credits

What Do You Need To Be Doing?

The two key criteria in determining who is eligible for R&D tax credits are ‘innovation’ and ‘uncertainty’.

A basic definition of R&D is to “work to resolve scientific or technological uncertainty aimed at achieving an advance in science or technology”. This can include new or developed products, services or processes.

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What Could You Expect?

The tax relief on allowable R&D costs incurred on or after 1 April 2015 is 230% therefore, for each £100 of qualifying costs, your company could have its Corporation Tax profits reduced by an additional £130 on top of the £100 spent.

If instead there’s an allowable trading loss for the period, this can be boosted by 130% of the qualifying R&D expenses. This loss can be utilised in the normal way or ‘sold’ to HMRC for a cash sum.

Research and Development Tax Credits
Research and Development

How Much Could You Claim?

R&D credits may be claimed in respect of any sum. The previous minimum limit of £10,000 has been removed. The maximum that may be claimed is €7.5m for any one project. However, the claim must be made within two years of the end of the accounting period in which the R&D expenditure was incurred.

For further information please contact us on the below details or call in for a chat.

R&D Revenue Expenditure Includes:

  • Staffing costs – for SMEs and large companies this category can include gross salaries, NI contributions, employer pension contributions and certain reimbursed business expenses.

  • Externally provided workers (EPWs) – EPWs are individuals provided to your company through a staff provider. They must operate through this staff provider instead of contracting directly with your company as individuals. Common examples include agency staff, contractors, and freelancers.

  • Subcontracted R&D – costs you can include for subcontractors differs between the Research and Development Expenditure Credit (RDEC) scheme and the SME R&D tax credit scheme. If you are making an RDEC claim, money spent on subcontractors does not normally qualify for tax relief – but there are exceptions. If you are making an SME claim, you can include 65% of payments made to unconnected parties.

  • Software – Your expenditure on computer software involved in R&D activities may be included. As for other categories, software partly used for R&D can be included at a reasonable apportionment.

  • Consumables – Materials consumed or transformed in your R&D process are defined as consumables, this includes water, fuel, and power. Your expenditure on the materials consumed or transformed in the R&D process may be included in your claim. Common examples include materials for the construction of prototypes or for use in trials.

  • Payments to the subjects of clinical trials – This cost typically only features in the pharmaceutical industry. Where companies pay people who are involved in clinical trials to test the efficiency of drugs as part of an R&D project.

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Manchester Accountants
Manchester Accountants
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