Your business could be benefiting from R&D Tax Credits – but are you eligible? And what exactly are R&D tax credits?
Keep reading to learn more about the government R&D tax credit scheme, including who is eligible and how much you could claim.
What Are R&D Tax Credits?
The R&D in R&D Tax Credits stands for research and development – it’s a government scheme that rewards companies for investing in innovation.
The credits can be valuable for any business and encourage more companies to invest in research and development. It can also help a business hire new staff and grow.
R&D tax credits cover staffing – not just hiring new staff, but paying salaries, pension contributions, employer national insurance contributions, as well as reimbursed expenses.
Another cost that qualifies for R&D tax credits is subcontractors and freelancers. This can include consumables and materials such as light, power, and heat that is consumed in the research and development process.
The cost of types of software, as well as payments towards clinical trials, can also qualify for research and development tax credits.
Who Is Eligible For R&D Tax Credits?
Regardless of what sector you work in, you could be eligible for R&D tax credits if you spend money on research and development.
If your business spends money on developing new products, services, or processes, or you spend money enhancing existing ones, then you’ll be eligible to claim R&D tax relief.
If your business spends money on innovation, then you can quickly and easily make a tax credit claim and receive a corporate tax reduction or a cash payment.
The R&D scheme covers each and every sector – as long as you’re spending money on research and development, then you’re eligible to claim.
However, it must be a part of a specific project to make advancements in science or technology.
With social science, such as economics or pure mathematics, it can not be claimed as an advance.
In order to make a claim, the project must relate to your company’s trade. For example, if your business focuses on plumbing, you can not claim R&D credits on a project about scientific advancements.
You can also claim R&D on a trade that you plan on joining based on the results of the research and development.
For each and every claim, you must explain how the project looked for an advance in science and technology, overcame an uncertainty, tried to overcome it. You must also explain why the project couldn’t be easily sorted by a professional in the field.
An uncertainty exists when a professional can’t determine whether something is possible, or can’t explain how it can be completed – so experts in your company can’t know about the outcome of your project.
You will need to explain why an expert in the field couldn’t figure out your advance – this can be done by proving that other efforts have failed.
You need to prove that the research and development are required to research, testing, and analysis. If you can’t do this, then you won’t be eligible for the R&D Tax Credit.
How Much Can I Claim?
The amount you can claim with R&D tax credit depends on how much you spend on research and development. You will need to identify exactly how much you’ve spent or will spend, and enhance it by the relevant rates to determine the enhanced expenditure.
When you add the enhanced expenditure to your loss or deduct the enhanced expenditure from your taxable profits, then you’ll get either:
- A corporation tax reduction (if you make a profit)
- A cash credit (if you make a loss)
- A combination of the two
Small and medium-sized enterprises can make claims of up to 33p for every £1 spend on qualifying research and development activities and priests. Most SMEs in the UK will claim around 57,000 – but of course, this will vary depending on the activities.
Larger companies, however, can only claim up to 11p for every £1 spent on R&D activities that qualify. The average claim of a larger company in the UK is much higher – around £630,000 – this is because they tend to spend much more on research and development.