Did you know that any company in any industry may be eligible for Research and Development (R&D) tax credits?

The scheme is not the preserve of scientists working in labs or inventors putting the finishing touches to their latest creation.

Simply, the scheme rewards businesses who invest in innovation. They help firms to afford risk-taking development schemes, allowing them to employ more staff, accelerate their development and ultimately grow and succeed, while boosting the UK economy.

What are R&D tax credits?

Any business that spends money on eligible research and development expenditure can make a R&D tax credit claim.

When claiming, you can receive the tax credit in the form of a cash payment or as a reduction in Corporation Tax, depending on the circumstances of your claim.

For businesses making their first claim, they can claim R&D tax relief for the last two accounting periods.

Credits are calculated based on the R&D spend of a business.

What qualifies as R&D?

The criteria are very broad and covers businesses of all sizes working in all sectors.

Qualifying work can be broadly defined as the creation of a new product, process or service or work to change or modify an existing product, process or service.

All that applicants have to prove is that their project:

  • Looked for an advance in science and technology
  • Overcame uncertainty or tried to
  • Would not be easily worked out by a professional in the field.

Your project must aim to create an advance in the overall field, not just for your business, which means that claims cannot be made for an existing technology that has been used for the first time in your sector.

What costs qualify?

Staff costs, such as salary and National Insurance contributions, along with costs for heating and materials qualify. Software and clinical trial costs may also be eligible.

What are the R&D tax credit rates?

SMEs can claim up to 33p for every £1 spent on R&D activities via the SME scheme. This is because it allows firms to deduct an extra 130 per cent of their qualifying costs from their yearly profit, as well as the normal 100 per cent deduction, to make a total 230 per cent deduction or, where the company is loss making, claim a cash tax credit that is worth up to 14.5 per cent of the surrenderable loss.

This scheme is only available where a company has:

  • less than 500 staff
  • a turnover of under 100 million euros or a balance sheet total under 86 million euros

Meanwhile, large companies are able to claim up to 13p for every £1 spent on R&D via the Research and Development Expenditure Credit, which allows firms to deduct 13 per cent of their qualifying R&D expenditure from their profits. SMEs can also apply for this scheme, where they have been subcontracted via a large business

Do you want advice to help your business fulfil its full potential? Contact our team of experts to find out how research and development tax planning can help you take your business to the next level.

Posted in Blog.