What are Research & Development Tax Credits?
Research & Development (R&D) Tax Credits are a HMRC Corporation tax incentive designed to encourage companies of all sizes and all sectors to invest into innovation.
Accessing this relief is an incredibly attractive way for eligible companies to obtain substantial cashflow benefits. The relief can reduce Corporation Tax liabilities, generate refunds for prior year payments or, for loss making companies, create a tax credit from HMRC.
Typically, every £100,000 of identified costs can lead to a tax benefit of almost £25,000. As claims can be made retrospectively for the previous two years there are considerable amounts of cash to be unlocked by innovative companies.
How to R&D Tax Credits work?
If the company is profitable, the R&D costs can be used to reduce the company’s tax bill to a far higher degree than the usual deductions. For SME’s this is roughly a 25% reduction in your Corporation Tax liability. If the company is loss-making (i.e. if it does not owe any corporation tax for that year), the claim benefit can either take the form of additional losses that can be carried forward to future years, or the losses can be surrendered for an immediate cash benefit of up to 33%.
What qualifies as R&D?
A project will qualify as R&D if your business is taking a risk and aims to advance the overall knowledge or capability in a field of science or technology through seeking to resolve a scientific or technological uncertainty. A qualifying project could create or significantly improve an existing process, material, device or product.
- Have you automated previously manual processes?
- Have you modified manufacturing processes, maybe for specific customer requirements?
- Have you developed new products or upgraded/refined existing products?
- Have you devised bespoke software for a particular purpose?
- Do any of your technical staff undertake research/problem solving?
- Are you market leaders in your field?
- Have you created patents over any of your products?
All of the technical description aside – if your company qualifies to claim R & D tax relief any of the costs below can be claimed at 230% for tax relief:
- Staff costs (including employers pension and employers NI, but not benefits in kind)
- Externally provided workers, eg agency staff (65% allowable)
- Consumables used directly in the R&D process
- Power, water, fuel used directly in the R&D process
- Computer software
- Subcontracted R&D costs can be claimed (65% allowable)
What is the process to claim?
Your claim will be managed by a dedicated claims manager who will provide an end-to-end service, ensuring an efficient process throughout and minimal disruption to you and your business. Our claims process is designed to be as efficient as possible, allowing you to do what you do best; focus on running your business.
Free Initial Consultation
We will meet with you to evaluate your business and its activities to identify whether you could qualify for a R&D Tax Credits claim. We will run through our process with you and how we can ensure the claim is prepared in an efficient manner for you and your business.
Our R&D specialists will consult with your key members of staff to discuss the work they have undertaken and whether this meets HMRC’s criteria of being eligible for R&D relief. The R&D specialists will then extract the qualifying costs that can be included in the R&D claim, ensuring that the costs claimed are maximised and accurate.
Technical Report Prepared
Our R&D specialists will then prepare a thorough and robust report that includes both the technical aspects of the R&D project and the qualifying costs and associated tax reliefs. The R&D Tax legislation is complex and through using the experience of our R&D specialists we ensure only qualifying costs are included within the report. We also ensure the technical content is in line with HMRC’s expectations reducing the risk of HMRC questioning the claim.
Report Review and Approval
We will provide you with a copy of our draft report and discuss the content of the claim with you to ensure the report accurately reflects the R&D projects undertaken. We will answer any questions you may have and quantify the tax relief claimed. Once approved the report will be submitted to HMRC with the company’s Corporation Tax Return.
After the report has been submitted, we will liaise with HMRC throughout the approval process, answering any questions they may have to get your claim approved. This process usually takes around 4 weeks from submission.
Require more information?
If you would like more information or would like to speak to us direct then call us on 01325 734843. Or if you would prefer, ask us a question online.