R&D tax credits enable large and small companies (including contractors) that incur costs in developing new products, processes or services to receive a cash payment.
The R&D tax credit scheme is a HMRC incentive designed to encourage innovation and increased spending on R&D activities by companies operating in the UK. The Government has expressed its desire to make the UK the most attractive place to start and invest in innovative companies and as a result the incentives for companies to innovate have continued to improve, however recent studies show that R&D relief is under-claimed by 99% of the eligible companies.
- You believe that only lab and research scientists can claim.
- You sell the end design or solutions and believe this stops your company from qualifying.
- You find the HMRC guidance unclear.
- The R&D tax credits claim process is laborious and time consuming.
- You believe it is not applicable to your industry.
Contrary to popular belief, R&D tax credit eligibility isn’t confined to companies with R&D labs full of people in white coats. Any company that spends money trying to improve a product or service through a technological advance, using qualified staff and appropriate project controls, and where there’s an element of doubt about the project’s success, is likely to be eligible.
In our experience, the average claim is around £42,000 which our clients get back as a cash sum within 8 weeks. Our R&D partners have a very strong relationship with HMRC and adhere to best practices, ensuring a very high success rate for our clients.
The main advantage of the scheme is you don’t pay a penny upfront, our R&D specialists work on a success only basis so you will always be cash positive.
Any company that spends money trying to improve a product or service through a technological advance, using qualified staff and appropriate project controls, and where there’s an element of doubt about the project’s success, is likely to be eligible.
Frequency asked questions about R&D tax creditsWhat Is The Criteria For Eligibility?
The two key criteria in determining whether an innovative company is eligible for R&D tax credits are ‘advancement’ and ‘uncertainty’.What Expenditure Is Allowable?
If your company and the project both meet the necessary criteria, then it is possible to claim relief on revenue expenditure, and in some cases also capitalised revenue expenditure, across three main areas; staff costs (gross salary, employers NIC, pension contributions etc), subcontractors/freelancers and consumable items (i.e. heat, light & power, materials and equipment ‘used’ and/or ‘transformed’ by R&D process).Are We Eligible For R&D Tax Credits?
Many business owners and finance departments will wonder ‘are we eligible for R&D tax credits?’ The answer is often yes. If your company is taking a risk by innovating, improving or developing a process, product or service, then it can qualify for R&D Tax credits. It’s rare to find a business where all of the R&D activity is transparent, neatly housed within easily identifiable job roles and functions. We tend to find it’s more typical that R&D functions will be spread across numerous aspects of the organisation, with some individuals playing a far more active role. We often start by working with clients to identify the specific job roles within a business, and attributing a percentage of their time as qualifying R&D expenditure. It’s not uncommon for us to find a Web Developer, Systems Engineer, Technical Director, Product Designer or CEO that is more involved in day-to-day R&D activity than even a dedicated R&D Manager might be.What Is Could Be Worth?
For SMEs, from 1 April 2012, the R&D tax claim enhancement (the enhanced deduction) was increased to 225% of the qualifying R&D expenditure incurred. Therefore, where an SME incurs expenditure of £100,000 on qualifying R&D, it can deduct £225,000 when calculating its taxable profit, or loss, for corporation tax purposes. As the £100,000 would already be accounted for in its accounts, the balance of £125,000 would be an additional deduction from its taxable profit and the corporation tax saving would be £25,000 (at a corporation tax rate of 20%). The equivalent of the company receiving 25p from HMRC for every £1 they spent on R&D activities. From 1 April 2015, the enhanced deduction was increased further to 230% of the qualifying R&D expenditure incurred. Using the same example as above, the additional deduction is therefore increased to £130,000 and the corporation tax saving is also increased to £26,000 (at a corporation tax rate of 20%).How To Claim Tax Credits If You Are Unprofitbale?
A common misconception about tax credits is the idea that you have to be profitable for them to be worthwhile. That has been false for many years now. In fact, the SME scheme used to be much more favourable to loss-making SMEs than profitable ones (25% vs. 15% return). Over the last couple of years, the schemes have become more equal, and now both profitable and unprofitable companies can get up to 25% return.
If you have a project that is currently in development, or even at an early planning stage, and are interested in finding out if you qualify for R&D tax credits, then please give us a call to discuss some brief details of the work undertaken. We will then have one of our trusted specialists to contact you directly to provide sound and practical advice.