An R&D tax credit is a cash payment from the government to encourage companies to conduct Research & Development other innovative activities.
33% of your qualifying R&D for SME R&D tax relief and 12% for RDEC
Government tax relief to encourage R&D
Receive cash 4-8 weeks after filing your claim for tax credits
Limited companies carrying out R&D in science and technology (including IT – it’s a broad definition)
Varies depending on the size of your claim
R&D projects must relate to science or technology, however HMRC’s definition is broad and includes investment into technology, IT systems, data and cloud computing. The range of businesses carrying out qualifying activity is ever expanding. Various events over the last two years, notably Covid-19 and Brexit have meant companies have had to step up their innovation to overcome restrictions.
If you’re building a startup or developing processes and products to meet a demand in an evolving market, it’s likely that you’ll qualify for research & development tax credits. R&D tax credits can be claimed for up to two years prior to the date of your claim. This gives you some time to get your business organised and make sure that all qualifying activities and costs are captured.
Our trusted specialists help you maximise your claim by identifying innovative activities while simplifying the process and taking care of your claim for you.
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Research and development is the term used to describe a business’ attempts to improve their competence and knowledge in their field in order to increase revenue streams via the creation of new products or processes, or the improvement of existing ones.
While research and development is an important part of any innovative company, it can be a costly process – and this can be problematic if your SME has a limited turnover. R&D tax credits are a government-funded scheme aimed at helping UK companies that wish to enhance their business’ efficiency and can be claimed either as cash payments or through a reduction in the amount of corporation tax you pay.
Your company could be eligible to receive R&D tax credits if you can show that the business “seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty”, as per the official government R&D tax relief website. You must also be able to prove that you have spent money on projects designed to achieve these goals.
Your business must meet certain additional criteria in order to apply to receive R&D tax credits; for example, it must be a registered limited company and subject to corporation tax in the UK.
To apply for R&D tax credits, you need to fill in a company tax return form and provide details of your expenditure. To work out your expenditure, you will need to do the following calculations as per the government’s official guidelines:
You will need to provide evidence to support your claim, with a written explanation of how your expenditure:
• Looked for an advance in science or technology and aimed to achieve this advance
• Had to overcome scientific or technological uncertainty
• Overcame this uncertainty
• Could not easily be worked out by a professional in the field
Your application must also include: the start and end dates of the accounting period of your research and development work (note: you can only claim tax relief for up to two years beyond the end date of this accounting period); your unique tax reference number; the total amount of tax relief you wish to claim; a summary of your costs; your unrelieved trading loss for the claim period.
The amount of tax relief you can claim depends on which scheme you are eligible to apply for. Companies with fewer than 500 employees and an annual turnover of less than €100m or a balance sheet of over €86m are eligible for the SME R&D tax credit scheme, which allows you to claim up to 33% of your R&D expenditure against your corporation tax.
The exact figure you are entitled to depends on additional factors, for example whether your business is profitable, loss making or breaking even and how much corporation tax you pay. If your business is profitable, you could claim up to 25% of your R&D expenditure, while if you are breaking even or making a loss that figure is likely to be 15-33%.
You are entitled to claim for a number of expenses that fall under research and development, including:
A more detailed explanation of what expenses can and cannot be claimed for can be found in this official government guide.
If your company has received a grant or subsidy you may still be entitled to R&D tax relief, but you will need to claim via the Research and Development Expenditure (RDEC) scheme.
As with the SME R&D tax credit scheme, this can be claimed against your corporation tax liability or paid as cash. However, your entitlement is likely to be significantly lower, around 12% of your research and development expenditure.
You can usually expect to receive your R&D tax credit repayment within 28 days of submitting your claim.
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