Research and Development tax credits explained

The government wants UK companies to succeed. It’s great for employment and training and overall successful companies boost the economy. To help companies be successful the government provides an incentive in the form of tax credits, to companies who are involved in innovation. This incentive is provided through Research and Development (R&D) tax credits and this article explains what they are, who is eligible to make a claim and how they work:

What is R&D Tax Credits?

In brief, companies who invest in innovation or specifically in ‘resolving scientific and technological uncertainties’ may qualify for R&D tax credits. This definition is purposefully broad, but it tends to include activities like trying to develop new products, processes or services or trying to improve existing ones.

What surprises most people is that R&D tax credits are open to companies in all industries – from construction to digital transformation – as long as the project aims to make an advance in science or technology.

 

Can I make a claim?

To make a claim for R&D tax credits, you must meet the following criteria:

• The business is a UK limited company which is subject to Corporation Tax
• You must have carried out qualifying research and development activities
• You must be able to show proof that you have spent money on the project(s). This includes staffing costs, money spent on subcontractors and freelancers, costs of materials and consumables and money spent on software.  

What is worth noting, is that you make a claim for work done on your own project or work you did for a client. Plus, the project didn’t have to be successful in order for a claim to be made.

How R&D Tax Credits work

There are two R&D tax credit schemes. The SME R&D tax credit scheme is for SME’s. These are companies with less than 500 staff and either with a turnover less than EUR 100 million or EUR 86 million gross assets.

Larger companies (with more than 500 staff and either with a turnover exceeding EUR 100 million or more than EUR 86 million gross assets) will have to make a claim with the Research and Development Expenditure Credit (RDEC).

However, there may be factors like grants which prevent an SME making a claim with the SME R&D tax credit scheme. So, it’s always important to get professional advice.  

SME’s are able to claim up to 33% on every pound spent on qualifying activities. While larger companies can claim up to 10p on every pound spent on qualifying activities.

Benefits of R&D tax credits

If your claim is successful and you are granted R&D tax credits this could lead a reduction in your Corporation Tax if you’re making a profit, a cash credit if you’re making a loss or a combination of the two.

For further information on R&D tax credits and to hear how they could benefit your business, get in touch with one of our Directors on 01962 867550 or send us a brief message via our website.