SME R&D Tax Credits

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SME R&D Tax Credits

The R&D( (research and development) tax incentive was brought in 2000 by the UK government to encourage scientific and technological innovation within the United Kingdom. At its base, the incentive is a Corporation Tax (CT) tax relief that may reduce a company’s tax bill if your company is liable for CT, in some circumstances it can result in a payable tax credit. The incentive is open to UK limited companies of all sizes, however depending on the size of the organisation, they will fall in either the SME or the RDEC incentive.

For the purpose of the R&D tax incentive, an SME (Small and Medium-sized Enterprise) is a UK Limited company that falls within certain criteria looked at by HMRC, these
are:

  • Staff Headcount (less than 500)

  • Either turnover (€100m) or balance sheet total (less than €86m)

There are exceptions to this in certain scenarios, the most common of which is that the SME company is part of a group (has partner and linked enterprises). This is because in this situation that company will need to consider its own data, a proportion of a partner enterprise’s data and/or the data of a linked enterprise.

  1. Deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total 230% deduction.

  2. Claim a tax credit if the company is loss-making, worth up to 14.5% of the surrenderable loss (this is capped at the lesser of either a) the amount of unrelieved losses sustained in that period by the company or b) 230% of the related qualifying R&D expenditure.

  3. Claim a tax credit if the company is loss making, worth up to 14.5% of the surrenderable loss (this is capped at the lesser of either a) the amount of unrelieved losses sustained in that period by the company or b) 230% of the related qualifying R&D expenditure.

Conditions To Qualify For SME R&D

Closure​
The business has to function without the threat of liquidation for the foreseeable future, which is usually regarded as at least the next 12 months.​
Corporation Tax​
The company has to be a UK Limited company and subject to Corporation Tax. ​
Staff Threshold​
The company meets the SME thresholds – under 500 staff and under €100m Turnover or under €86m Gross Assets.
Grants​
No grants or subsidies have been received in respect of the expenditure – this includes notified state aid and de-minimis funding.

SME R&D: 4 Most Claimable Costs ​

Salary

You will be able to claim for costs such as:

  1. Gross salary/wages 
  2. Class 1 National Insurance contributions 
  3. Pension Fund Contributions
    (as a percentage of time spent on R&D)

Subcontractors

You will be able to claim back on connected subcontractors and unconnected subcontractors. 

(restricted to 65%)

Travel

If the costs of travel relating to the R&D are initially paid for by the staff member this cost can be included (as it is deemed a staff cost), however, if travel is paid for via a company credit card it is not allowable.​

Materials

Materials consumed and wastage during development – Mainly materials testing / prototyping during development attempting to develop the optimal solution. ​

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Quick Q&A

In short, yes. The best thing to do is to figure out how much R&D you are doing, you should then be able to assign a proportion of your light, heat, water and power that was used for your R&D and amend your claim accordingly. 

One of the biggest portions of claims for the Research and Development tax incentive is circled around staff costs. Whether that might be people directly involved within the R&D or others who might be indirectly involved.

No, you do not need to create a new product to qualify for R&D Tax Credits. For example, if you tweaked a cleaning product which had an advancement, this could be claimed for the R&D incentive. Anytime you have attempted an advancement in the Accommodation and Food sector, whether this worked or not, could still have the potential to be a qualifying activity.

Yes! You are able to claim for unsuccessful projects as this falls under the ‘uncertainty’ you faced during the Research and Development you undertook.

Examples of uncertainty for R&D are;

  • Attempting to fix an issue with machinery that does not meet your manufacturing requirements however being unable to resolve the issue
  • Managing environmental factors, decreasing your carbon footprint during  your manufacturing process 
  • If a recipe or cleaning product didn’t work as well as you anticipated and didn’t provide you with what you needed

Counting King R&D Tax Credit

We highly recommend that your company makes the most of the ‘HMRC’, the UK Government’s incentives, and the grants for Research and Development. This really should be an easy decision for every UK company or business. The incentives will provide a welcome cash injection to your business or a reduction in your tax burden.

There is a two-year deadline for an R&D Tax credit claim. This means you have a window; if this is your first year claiming or you didn’t know about this incentive previously you can go backward and claim for the previous year also.

To learn more about this incentive read through the Counting King R&D Tax Credit Brochure.

Use our R&D Tax Calculator

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.

Download our Research and Development Information Here

Learn about the process for claiming by downloading our one pager or learn more about R&D Tax Credits here.