A Guide To R&D Tax Credit Claims
Research and Development, or R&D as it is also known, is essential for promoting the growth of any business. For some companies, however, research and development is also a way to get some tax relief. A variety of R&D tax credits is offered by HMRC (Her Majesty’s Revenue and Customs) which are worth finding out about, irrespective of the size of your company.
If your business meets all requirements on the application form, then you could also gain from the government’s R&D tax credit scheme for small or medium enterprises (SME).
Following is a guide to give you a better understanding of r&d tax credits and what you should do when applying for them for your business.
What Requirements Are Necessary For My Business To Claim Research And Development Tax Credits?
Usually, HMRC’S regulations require that a business is involved in solving some type of “technological or scientific uncertainties” to qualify for R&D tax credit. However, as they do not specify exactly what this category covers, there are several ways that your business can claim r&d tax relief, such as:
- If your company manufactures a new product, then you could possibly claim for a portion of the research that went into its development and production
- If your company is not in the manufacturing business, but has instead, created a unique process or service, you might be eligible to qualify for an R&D tax credit
- If your R&D efforts relate to adjustments you made to a service, process or product that your company created previously could also make you a potential candidate for r&d tax relief
Research and development credit regulations have another couple of significant requirements too, which increase even more the number of businesses who are eligible to apply for an r&d claim. These include:
- If a provider or agency has carried out one or more of the above-required actions on behalf of a client
- Even if your attempts at R&D were unsuccessful, there is still a chance that you can claim r&d tax relief
It is therefore advisable to keep all relevant documentation as well as verification in order, in the event that you want to make any claim in the future.
What Expenses Am I Able To Claim Back?
As a business, it is natural that you want to claim the highest possible amount in r&d tax relief, but are uncertain as to what R&D costs you can claim. You have several choices regarding r&d tax relief, according to the definition created by HMRC. For instance:
- If you can prove that what you normally spend on paying staff, subcontractors, or other employees, including essential employer expenses like pension fund contributions, was in fact used for R&D.
- You can also claim for staff and materials expenses, including the money you spent on essentials like power, heating costs involved with r&d, or any basic requirements for your workplace or factory
R&D tax credit claim rules also apply to certain types of software used by businesses that make use of more modern technology.
What Are The Rates For An R&D Tax Credit?
Eligible small or medium enterprises (SME’s) can save a lot of money when they make an r&d claim. Even those companies making only an average claim benefit from this rule, so it’s definitely worthwhile looking into.
To be classified as a small or medium (SME), you should have less than 500 people in your employ and a balance sheet showing less than 86 million Euro/£76 249 320,00 or less than 100 million Euro/£88 621 000,00.
This will allow you to take a further 130% if your business’s qualifying costs from your total yearly profit as part of the r&d tax service, over and above the usual 100% deduction you would be entitled to.
Should your business not have made any profit you might be able to relinquish your company’s losses to HMRC, who will give you an R&D tax credit, namely money, in return.
With a cash rate of 14.5% of your relinquished losses, r&d tax credit rates are extremely generous. In other words, you get up to 33.5% in cash from HMRC for your R&D spend back. This can be of significant help if your business is going through tough financial times.
What Is The Research And Development Expenditure Scheme?
The Research and Development Expenditure Scheme (RDEC) is a tax credit for 11% of all a company’s qualifying R&D expenditure. It is aimed at larger companies making claims from the government’s small and medium enterprises R&D tax credit scheme.
Bear in mind that this tax relief will be increased to 12% at some point, providing even more value for your company.
Sometimes it’s not clear as to whether your business falls under the SME or RDEC scheme when you want to claim r&d tax relief. Should you be in this position, then it is a good idea to use the services of professionals to help you figure out which category your company falls under, prior to making an r&d tax credit claim.
Factors That Can Affect Your Claim
Several factors can affect a claim, such as the following:
- Whether your company carried out work as a subcontractor
- If the research and development work carried out by your business was for a large company, then it is more than likely that you will be moved into the RDEC scheme to acquire your r&d credit
Other factors that could also influence your claim include:
- Where your company is based
- Whether or not most of the income earned by your company was in the UK or out of the country
- If your company got assistance in the form of a grant to deal with the R&D issue concerned
Should you not know whether or not your company is eligible to apply, then speak to us at Finance.co.uk who will give you all the assistance you need regarding your concerns about research and development tax credit claims.