Get out of your funding comfort zone with R&D tax credits

Get out of your funding comfort zone with R&D tax credits

Claiming R&D tax credits for your business

If your company invests a lot into research and development, it’s worth looking into whether you can recoup this via the government’s research and development tax credits scheme. Designed to encourage innovation, it rewards companies undertaking groundbreaking research and development work by giving them a chunk of their costs back.

You can recoup up to a quarter of your qualifying costs (more, in fact, if you make a loss) – which, for some businesses, means hundreds of thousands of pounds.

Who is eligible for research and development tax relief?

The scheme is open to companies working in science, technology, engineering and medical research who are trying to solve problems and make advances in their field. This could mean developing a new process, product or service – or improving one that already exists – through research, testing and analysis. As part of your application, you’ll need to tell HMRC about your work and why it was groundbreaking.

Key to being eligible is that your work involves “overcoming uncertainty” – meaning there was no guarantee that what you were doing was scientifically or technologically possible, and so going ahead was a risk. Your project doesn’t even have to be successful – after all, the whole point of innovation is that you don’t always get it right – and loss-making businesses can claim, as well as those which are making a profit.

You must, however, be a limited company registered in the UK and subject to corporation tax.

What types of research and development tax relief are available?

There are two kinds of research and development tax relief:

Small and medium-sized enterprises (SME) relief: This is for companies with fewer than 500 staff, and either a turnover of under €100m or a balance sheet total of under €86m.

You need to consider linked companies and partner companies (companies in which you hold more than 25 per cent of the voting rights or capital, or which hold more than 25 per cent of your company’s voting rights or capital) when you work out if you fit into this category.

Small and medium-sized enterprises can claim up to 26 per cent of their qualifying costs back if they made a profit, or 33 per cent if they made a loss. In 2016-7, the average claim made by small businesses was £53,876.

Research and development expenditure credit (RDEC) scheme: This is for larger companies, or small and medium-sized companies who’ve been subcontracted to do work by a large company. Small and medium-sized companies who have already received grants for their work also fit into this category.

These companies can claim up to 12 per cent of their qualifying costs back, and the average claim made in this category in 2016-7 was £272,881.

What costs can I claim for?

Qualifying costs include:

  • Staff costs: a proportion of wages, national insurance contributions and pension contributions for staff working on the project
  • Material costs, including some software
  • Utilities (heating, lighting, electricity)
  • Payments to people in clinical trials

You can’t claim for the costs involved in the production and distribution of goods and services, capital expenditure, land, rent or rates, and patents or trademarks.

You can claim for costs throughout the duration of the project – so from the day you start working on it to either making your breakthrough, or deciding to quit.

If you would like to seek further advice about the eligibility of your claim, or need help with the claims process, contact an R&D Tax Solutions specialist. They can help with all aspects of a claim and help you to get the best possible remuneration for your efforts.

Category Business

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