Research and development (R&D) tax credits are a government incentive designed to stimulate innovation and reward UK companies for investing in solutions which seek to overcome challenges and uncertainties around their products and processes. R&D Tax Credits are a valuable source of cash that allow businesses to invest in accelerating their R&D, hiring new staff and ultimately growing.
Claiming R&D Tax Credits
Helping you get rewarded for your innovation
What constitutes R&D?
The criteria associated with R&D are deliberately broad in order to promote innovation. Whatever sector you operate in, if your company is taking a risk by attempting to “resolve scientific or technological uncertainties” then this may constitute a qualifying activity. This can include creating new products, processes or services or indeed changing or modifying an existing product, process or service. Importantly, the criteria do not require R&D to have been successful in order to qualify for the incentive.
What costs qualify for R&D tax credits?
Qualifying costs can include:
- Staff and associated costs, including salaries and other PAYE costs and expenses
- Subcontractor and freelancer costs
- Some types of software
- Consumables
What R&D tax credit incentive is best for my business?
Ultimately the incentive you use to make an R&D tax credit claim will largely be governed by whether you are an SME or a large company.
An SME is defined as a company with fewer than 500 staff and either not more than €100 million turnover or €86 million gross assets. The majority of companies, including start-ups, fall into this category.
A large company is defined as having 500 staff or more and either more than €100 million turnover or €86 million gross assets.
If you satisfy the criteria for an SME then you will make any claim via the SME R&D tax incentive. Alternatively if you are a large company, any claim will be via the Research and Development Expenditure Credit (RDEC). There are some factors which can restrict an SME from taking advantage of the SME incentive e.g. grants and subcontracting and in those circumstances a claim may need to be made via RDEC or via both incentives. We can help ensure that the best possible use is made of those schemes to ensure the maximum value is obtained for the benefit of your business
How much is R&D tax credit claim worth?
R&D tax credits are calculated on the basis of how much you have spent on R&D.
SMEs are able to claim up to 33p for every £1 spent on qualifying R&D activities. The average claim made by SMEs in the UK is £57,228 (2018-19).
Large companies are able to claim up to 11p for every £1 spent on qualifying R&D activities. The average large company (RDEC) claim in the UK is £632,931 (2018-19).
An R&D credit calculation is based on identify qualifying expenditure using the applicable rate outlined above. This then produces your ‘enhanced expenditure’.
When you deduct your enhanced expenditure from your taxable profits, or add it to your loss, it will result in:
- a Corporation Tax reduction if you are profit-making.
- a cash credit if you are loss-making.
- or a combination of the two.
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