Research and Development (R&D) tax credits were launched by the government in 2000 as a way of encouraging and rewarding innovation in UK business.
Last year, more than 39,000 UK companies successfully claimed nearly £3.5bn in tax relief. However, many organisations are still not aware they qualify for R&D tax credits and are missing out on funding that could be used to grow their company and fuel their innovation.
To meet the UK government’s definition of Research and Development for tax purposes, your project needs to ‘seek to achieve an advance in science and technology’.
Any activities that directly contribute to achieving that advance through the resolution of scientific or technological uncertainty are considered R&D.
That could include projects which, for example:
Extend knowledge in a specific area of science of technology
Creates a new process or service that advances science or technology
Develops a new material, device or product
Makes an improvement to an existing process, material, device, products or service
The R&D definition is deliberately broad. It allows for companies of any size and from any sector to apply for funding wherever those companies are taking a risk by attempting to ‘resolve scientific or technological uncertainties’.
The list of costs that are eligible for R&D compensation is huge. Our analysts will help you identify which are applicable to your projects, but just to give you a flavour, eligible expenditure covers:
A proportion of the salaries, wages, Class 1 National Insurance contributions and pension fund contributions of any staff working directly on your R&D project. You can also reclaim costs for the wages and costs of any support staff who work directly on an R&D project (for example, specialist cleaners).
Including light, heat, and power that is being used for the purposes of R&D.
You may be able to claim subcontractor costs if you subcontract to a charity, higher education institute, scientific research organisation, health service body, individual or partnership of individuals.
And other costs including:
Payments to the subjects of clinical trials
Some types of supporting software
Developing manufacturing processes
If this is your first claim, you’re likely to be able to claim R&D tax relief on your two most recent completed accounting periods. After that, you can claim once annually.
Costs can be claimed from the project’s start date (which the government defines as the time you start working to resolve a scientific or technological uncertainty), until you develop or discover the advance, or if your project is unsuccessful, until the project’s end date.
There are a few things the government states you cannot claim R&D costs for. They include:
the production and distribution of goods and services
the cost of land
the cost of patents and trademarks
rent or rates
clerical or maintenance work that would have been done anyway, such as managing payroll
Any company, in any trade or sector, that encounters expenses in the course of developing new products, processes or services is eligible for R&D tax relief. You can also be eligible for R&D tax relief if you run up expenses enhancing existing products, processes or services, too.
You can claim Corporation Tax relief if your project meets the government definition of R&D.
To meet the UK government’s definition of Research and Development for tax purposes, your project needs to seek to achieve an advance in science and technology.
The activities that directly contribute to achieving that advance through the resolution of scientific or technological uncertainty are considered R&D.
That term “advance in science and technology” has a detailed, special meaning for tax purposes. Our advisers can help you understand the legal definition in relation the work you do, but it can be helpful at this initial stage to remember that it means an advance in overall knowledge and capability in a field of science or technology or an adaptation of knowledge or capability from another field of science or technology in order to make an advance in another.
That’s ok; that’s where our expertise lies. Our experienced and highly skilled team of tax consultants, researchers, analysts and technical report writers will spend time getting to know exactly how your business operates and can confirm for you whether you are eligible to make a claim or not. In our experience, businesses are often undertaking eligible research and development without necessarily realising it and are therefore unknowingly missing out on valuable funding.
It’s worth bearing in mind that research and development, under the government definition, doesn’t have to be successful for it to form part of a claim.
To be eligible for R&D tax relief, your project must be part of a project that has the specific aim of making a scientific or technological advance. It cannot therefore be trying to advance something within a social science like economics, or a purely theoretical field like pure mathematics.
The project must relate to your company’s trade - either an existing one, or one that you intend to start up based on the results of the R&D.
To get R&D relief you need to explain how a project:
looked for an advance in science and technology
had to overcome uncertainty
tried to overcome this uncertainty
could not be easily worked out by a professional in the field
Yes, there are. HMRC operates two types of tax relief based primarily on the size of your company and whether you are subcontracted or not.
This scheme is designed specifically to enable small and medium-sized enterprises to claim tax relief for their research and development focused work.
To qualify for the SME scheme, you’ll need to be a company with fewer than 500 employees. Additionally, you’ll need to take in less than £100 million per year or have a balance sheet that doesn’t exceed £86 million.
If your company is connected to any other businesses via a partnership, you may need to include the revenue and number of employees in the partnered company too when calculating which scheme you qualify for.
"SME claimants typically receive between 18-33% of their R&D expenses back from a claim."
Primarily used by large organisations, the Research and Development Expenditure Credit (RDEC) has been designed by the Treasury to reward companies investing in larger-scale innovative research and development activities.
In some cases, RDEC can also be claimed by small and medium-sized enterprises (SMEs) who have been subcontracted to do R&D work by a large company or who have received a grant or subsidy for their R&D project.
If you’re not sure which scheme your business is eligible for. Speak to a member of our team.
"RDEC claimants typically receive up to 12% of their R&D spend back from a claim."
Your R&D tax credits are calculated based on your R&D spend.
SMEs are eligible to claim up to 33p in every £1 spent on R&D activities.
Large companies are eligible to claim up to 11p for every £1 spent on R&D activities.
The average claim made by SMEs in 2017-18 was £53,714.
The average claim made for RDEC by large companies in 2017-18 was £600,977.
If your business recorded a profit for the period you are claiming R&D expenditure for, your overall Corporation Tax due on your account will be reduced by the amount of tax relief awarded. If you have already paid your bill for the period, you will receive a repayment.
If your business made a loss during the period of your claim, you will receive your tax credits as cash paid into your bank account.
HMRC aims to process all claims within 28 days of receipt, however sometimes it can be a little longer. If your claim is for RDEC, expect it to take longer.
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