R&D Tax Relief?
Research and Development Tax Relief is a Government incentive which encourages businesses to invest in and develop innovative products and services in the fields of science and technology.
The innovation being sought could relate to a new business process or system, a new material or a new communications device, or an improvement on something which already exists, but it must represent an advance in either a scientific or technology sphere of research.
HMRC has a set of conditions which they will apply when determining whether your R&D project is eligible for R&D tax relief which ensures the project aims to achieve a genuine advance or improvement where a solution has not yet been discovered.
The tax relief can be claimed even if your project was unsuccessful, as long as it meets HMRC’s criteria. It can also be claimed whether you have carried out the work yourself, or been part of another company’s team working on the advance.
Who is eligible to claim?
It may surprise you to learn that any limited company, large or small, profitable or non-profitable, in the science and technology business sectors may be eligible to claim R&D tax relief.
SMEs are limited companies with no more than 500 staff and a turnover of less than £100m, and won’t be eligible if they are already receiving Government aid. Large companies would have a turnover of more than £100m or gross assets worth £86m, and more than 500 staff.
Product & Process
If your company is working on the creation of something new which has not been done before or doesn’t currently exist as a service, product or process, provided this work meets HMRC’s qualifying conditions, you may be eligible to claim this relief.
Whatever the size of your business, think about whether these aspects apply to your R&D activity:
Employee overheads for staff working directly on your R&D activity, e.g. salary, national insurance and pension contributions, including technical workers and administrative support staff.
65% of these payments if you are paying agency staff or a subcontractor in these roles
Software licence fees purchased specifically for the project, or a share of the costs if the software is partially used for the project.
Utilities & Materials
The relevant proportion of costs of consumable items such as utilities or materials.
Payments made to volunteers in pharmaceutical trials.
What can I claim?
The relief is paid via a tax credit against a company’s Corporation Tax liability. It can be awarded whether or not the R&D project was successful and irrespective of whether the company is making a profit or a loss.
The amount of R&D tax credit which can be claimed varies depending on the size of the business. HMRC currently operate two schemes relating to R&D tax relief; one for SMEs and the other for larger companies who can claim Research and Development Expenditure Credit (RDEC).
If your claim relates to a previous financial year in which you have already paid your Corporation Tax bill, HMRC can provide you with a cash refund.
Many companies lose out on their R&D tax credits because they fail to identify every item of expenditure, which can increase the amount they can claim.
Our team of R&D specialists know precisely what HMRC will and will not allow. We can save you valuable time by doing all the work for you and ensuring you claim the maximum amount.
for in-profit companies
for loss making companies
for Large Companies
*SMEs can receive up to up to 25% of their R&D expenditure if they are in profit. If your company is profitable, the R&D tax credit amount enhances your total R&D expenditure, which reduces the amount of your taxable profit. Corporation Tax is levied against a company’s profits, so your R&D tax credit reduces the amount of Corporation Tax payable.
**If your SME is making a loss, you can claim up to 33%, which can be then be exchanged for a cash lump sum, because the tax credit cannot be offset against your taxable profit.
***Large companies can receive up to 13% of their R&D costs under the RDEC scheme. (RDEC can also be claimed by SMEs who are carrying out R&D work as a subcontractor for a large company).