Research and development tax credits are a tax relief designed specifically to encourage greater R&D spending and investment in innovation by companies registered in the United Kingdom who are subject to corporation tax.
A successful claim will either reduce your company’s liability to corporation tax or give you a cash re-payment.
There are two schemes for claiming relief:
- Small or Medium-sized Enterprise (SME)
- Research and Development Expenditure Credits (RDEC)
Spending on R&D will qualify under either scheme if your company is attempting to overcome scientific or technological uncertainties at its own risk.
Most companies and industry sectors engage in some level of innovation so R&D Tax Credits have a wide application and you can backdate claims up to two years from the end of your accounting period.
Impact Finance Director operates on a contingency fee basis so there is no risk to engage in a survey of your companies research and development spend.
Group companies. HMRC treat all companies worldwide in a group as a single economic entity, so check that SME limits above are not exceeded by the Group.
Your R&D will qualify if you try and overcome scientific or technological uncertainties, through creating new or significantly enhanced products, services, software or processes. You can also count R&D where you copy and improve a competitor’s product. However detailed information concerning your R&D cannot already be publicly available or deducible by a competent professional in the field.
About your R&D project
Make your project identifiable with a clear objective and a start and end date. If the project spans multiple accounting periods then qualifying costs in each period will be set against the corresponding corporation tax via a HMRC CT600. Your R&D project also needs to be at your own risk (you pay) regardless of whether the project succeeds or fails.
What costs qualify for tax relief?
The key qualifying costs are summarised below:
- Staff Costs – Apportion your employee costs (salary, national insurance and employer pension) for their time spent on the R&D project. You can also count reimbursed R&D business expenses.
- Software – Include any software purchased for R&D purposes. Apportioned costs if there is any subsequent use.
- Subcontracted R&D – Claim 65% of what you paid your R&D subcontractor.
- Utilities & Consumables – Add up water, fuel, power and material used in the project.
- Prototypes – Include all R&D prototypes.