Research & Development Tax Credits
What are R&D Tax Credits?
The UK government provides some significant Tax incentives for companies undertaking research and development work (R&D). The aim is to encourage investment in R&D and to make the UK an attractive location for overseas companies to undertake their R&D activities.
There are two schemes, depending on the size of the company. The SME scheme is applicable to companies across all sectors, providing the following thresholds are not exceeded:
- Fewer than 500 employees
- Annual Turnover not exceeding €100m
- Balance Sheet with Gross Assets not exceeding €86m
Is something you’re doing eligible?
HMRC and the Department of Trade and Industry have issued some guidance on the meaning of R&D for tax purposes.
For an activity to be considered as R&D it should aim to do the following:
- Seeking an advance in science or technology
- Resolving scientific or technological uncertainties
- Developing new and innovative products, processes or services
- Enhancing or appreciably improving existing ones
Many companies, particularly small ones, have no idea that what they’re doing could qualify as Research and Development. You may well be surprised at what can qualify. From a simple, bespoke spreadsheet to a fully fledged high tech product, R&D Tax Credits can apply to just about any sector, to companies of any size, for all manner of innovation.
From the obvious activities…
To the more unusual ones…
What is the benefit of performing R&D?
SMEs can claim an additional 130% deduction of the qualifying expense incurred.
Whether you are profit or loss making, you may still be eligible for the relief, with up to 33p in every £1 spent on qualifying R&D activity potentially being recovered. For large companies above the SME threshold, this reduces to 10p in every £1 spent.
A Tax Credit can be an immediate source of cash which you can reinvest in your R&D and continue to lead innovation!
What expenditure is qualifying?
The following expenditure qualifies for the SME R&D tax relief:
- The cost of staff directly involved in the R&D work.
- 65% of the cost of externally provided workers engaged by the company to work on the R&D project.
- The cost of software and consumable items, including fuel, power and water.
- 65% of the cost of subcontracting specific elements of the R&D work to a third party.
The R&D work must not be subsidised by grants and must not relate to R&D subcontracted to the company by another person.
How we can help
If you would like to discuss the R&D process, please contact our in-house specialist R&D tax relief team for a no-fee discussion to see if you potentially qualify for either scheme. We offer no contractual obligation for future years and are happy to discuss flexible payment terms.