Research and Development (R&D) tax credits are a type of tax incentive provided by governments to encourage companies to invest in research and development activities. These tax credits are designed to reward companies that engage in innovative activities by reducing their tax liability or providing cash refunds.
R&D tax credits vary by country, but they generally apply to expenses related to the development of new products, processes, or technologies.
In many cases, companies can claim R&D tax credits even if their research and development projects are not successful. This is because the focus is on the effort and investment made, rather than the outcome.
In the UK, to be eligible for R&D tax credits, a company must be engaged in projects that seek to achieve scientific or technological advancement through the resolution of scientific or technological uncertainties. The project must also meet the following criteria:
Examples of qualifying R&D projects in the UK include developing new products, improving existing products, developing new manufacturing processes, improving existing manufacturing processes, improving software or hardware performance, developing new materials or chemicals, or improving energy efficiency.
It’s important to note that the qualifying R&D project must be carried out by the company claiming the credit and must not be subcontracted out to another company. Additionally, certain expenses, such as routine testing, market research, and data collection, are not eligible for R&D tax credits.
In the UK, several types of expenses can be included in the calculation of R&D tax credits. These can include:
It’s important to note that these costs must be directly linked to the R&D project being claimed and must not include any expenses that are unrelated to the project. Additionally, any expenses that have been reimbursed or received grant funding cannot be included in the R&D tax credit claim. It’s also important to maintain accurate records of all expenses related to the R&D project to support the claim.
In the UK, there are two main types of R&D tax credits available: SME R&D tax credits and R&D Expenditure Credit (RDEC).
SME R&D Tax Credits:
SME R&D tax credits are specifically designed for small and medium-sized enterprises (SMEs) and are more generous than RDEC. To qualify as an SME, a company must have fewer than 500 employees, a turnover of less than €100 million, or a balance sheet total of less than €86 million.
SME R&D tax credits allow companies to claim up to 33.35% of their eligible R&D expenditure as a tax credit or a cash payment, regardless of whether the company is profitable or not. This means that if a company spends £100,000 on qualifying R&D activities, it can claim up to £33,350 in tax relief or cash back.
R&D Expenditure Credit (RDEC):
R&D Expenditure Credit (RDEC) is designed for larger companies or those that don’t meet the SME criteria. The RDEC scheme replaced the previous Large Company Scheme (LCS) in April 2016.
Under RDEC, companies can claim up to 13% of their eligible R&D expenditure as a tax credit, which is deducted from their corporation tax liability. Unlike SME R&D tax credits, RDEC is not payable as a cash payment and can only be used to offset corporation tax liabilities.
Both SME R&D tax credits and RDEC can be claimed by companies engaged in qualifying R&D activities. However, the amount of relief available and the way it’s claimed differs based on whether the company is an SME or a larger company.
This is a short meeting either via telephone or in person, in order to confirm if you are eligible for this tax incentive!
This is to confirm our Terms and Conditions, NDA, and Data Protection Compliance. This is just a simple form to be signed electronically.
This is a meeting where you will discuss your projects in greater detail and describe why you could not simply solve this with an off the shelf solution.
We request copies of certain financial documentation, such as, your accounts, payroll summaries, and tax computations in order to calculate which benefit you will receive.
This is where we shall send everything over to you in order to receive your approval, and to make sure that you are happy with the content included to be sent to HMRC.
This is the stage when your R&D claim, and all of the supporting evidence we have produced is submitted to HMRC for processing!
Once HMRC have processed your claim, your tax portal will be updated, and you will receive the benefit discussed with your tax analyst!
Find Out How Much You Can Claim With Our FREE Research and Development (R&D) Tax Credits Calculator. You can even get the calculation emailed to you for future use.
It’s important to maintain detailed records of all eligible R&D expenditure and the activities carried out in each qualifying project to support the R&D tax credit claim. Companies should also ensure that they comply with all relevant legislation and guidance issued by HMRC when claiming R&D tax credits.
In the UK, there are two main ways in which a company can receive R&D tax credits:
It’s important to note that the amount of R&D tax credit a company can receive depends on various factors, such as the size of the company, the type of R&D project, and the eligible expenditure. Additionally, the company must meet the eligibility criteria and provide accurate and detailed information to support the claim.
Contact us today to learn more about our R&D tax credits options and how we can help your business grow.