What are R&D Tax Credits?
Research and Development (R&D) Tax Credits – also known as R&D Tax Relief – are a government financial incentive designed to reward investment in innovation.
Launched in 2000 by HMRC, R&D Tax Credits offer financial support to eligible companies to hire new staff, grow, and ultimately further their own research and development via refunds, corporation tax reductions, or even a simple cash lump sum.
In the year ending March 2020 alone, nearly 86,000 R&D Tax Relief Claims were made to HMRC which resulted in payments of £7.4 billion (£4.4 billion from SMEs).
R&D Tax Relief is made up of two schemes:
SME R&D Tax Relief which provides reimbursement for up to a third of development costs for micro, small, and medium-sized companies.
The Research and Development Expenditure Credit (RDEC) which supports larger businesses with a 13% tax reimbursement.
Of the 86,900 R&D Tax Credit claims made in the year ending March 2020, 76,225 of them were made by SME’S, an increase of 16% from the previous year.
HMRC sees R&D being carried out if you are creating, modifying, or improving a product or service, or solving a problem with no obvious existing solution. To know if your project qualifies for R&D Tax Credits, you should think whether it sets out to achieve an advance in the field of science and technology.
R&D Tax Credits are not exclusively awarded on successful projects. HMRC will qualify expenditure so long as it was in pursuit of solving a project uncertainty.
Who is eligible for R&D tax relief?
To qualify for R&D Tax Credits, you don’t need to work within specialist fields – so long as the investment seeks to overcome uncertainty or a technological problem then a business likely qualifies.
Many companies don’t know or even think that they qualify for R&D Tax Relief because they’re not conducting ground-breaking scientific research on dark matter or nanoparticles.
The reality is that R&D Tax Credits cover a much broader range of businesses, activities, and industries.
- There is a range of costs that qualify for R&D Tax Relief, staffing costs like gross salaries, national insurance and pension contributions meet the criteria.
- Resources that are used throughout your business’s R&D process like fuel and water are defined as consumables which can be included in your claim.
- Computer software involved in R&D activities may also be included.
If you are outsourcing part of your R&D to external contractors, then you can claim a proportion of the cost in your R&D Tax Relief.
What is our process for claiming R&D tax credits?
In the preparation of an R&D Tax Credit claim we adopt a straightforward 3 step process.
Step 1. We start with an initial call. A company’s eligibility for R&D Tax Credits needs to be established in the initial phases of the claiming phase. This is done through obtaining background information on the company in question and outlining how their specific R&D process works.
Step 2. The second step of our R&D process is outlining all the projects that are set to be included in the R&D claim.
Step 3. Finally, our consultants work with clients to then prepare and co-populate cost collection documentation, detailing relevant project costs and to formalise an R&D apportionment methodology consistent with those verified by HMRC as preferred methods.
Within 28 days of an initial call, a finalised R&D Tax Claim package can be submitted to HMRC including technical and financial aspects of the claim, with your R&D Tax Claim paid out 28 days later.
Take a look at the case studies of our industry experience for R&D Tax.