R&D Tax Credits are a very niche part of the UK tax code that could
bring your company thousands of pounds in tax relief.
Research and Development Tax Credits are a tax incentive designed to encourage UK companies to invest in their research and development (R&D). The tax credits can allow a company to reduce their tax bill or claim cash credits as a proportion of their R&D expenditure over the qualifying period.
Yes. The Small to Medium Enterprise (SME) and RDEC schemes are designed to reward research and development activity by providing either relief on Corporation Tax, or cash credits even if the business is loss-making.
Due to the wide-reaching nature of R&D, 78% of businesses could be eligible for the scheme. If your business is trying to resolve scientific or technological uncertainties with some level of risk, you are carrying out the right type of R&D. It does not matter which sector your business is in.
If you have carried out eligible R&D activities within the past two years, then yes.
The easiest way to check if you qualify is to use our online calculator or get in touch with us.
If you are problem solving and looking to overcome technological difficulties by creating new products and services or improving existing ones, then you could qualify. Your R&D doesn’t even need to be successful.
No. There are two incentives to choose from so all businesses can apply. The first, the SME scheme, is for start-ups and business with fewer than 500 staff and turnover under £100 million. The second is the RDEC scheme for large companies, which is defined as having more than 500 staff and generating turnover in excess of £100 million.
This depends on the size of your business. If you are an SME you can claim up to 33% of your total R&D costs. If your business is profit-making this is seen as a Corporation Tax reduction, or if the business is loss-making then this is in payable cash credit and is not taxable.
A large company is able to apply for 13% back through the RDEC scheme and this is awarded in the same way as SMEs.
For staff working directly on the R&D project, you can claim a proportion of their:
- Class 1 National Insurance contributions
- Pension fund contributions
You can also claim for administrative or support staff who work to directly support a project (for example, specialist cleaning staff). But you can’t claim for clerical or maintenance work that would have been done anyway, such as managing payroll.
You can claim against 65% of the relevant payments made to an external agency if they provide staff for the project.
Yes, depending on whether you are claiming under the SME or RDEC scheme, you may claim for costs incurred through subcontracted work. There are certain conditions, but we can figure out all of that for you!
The company can claim for all consumable items used throughout the R&D process, including:
- Costs that cannot be claimed
The company cannot claim for:
- the production and distribution of goods and services
- capital expenditure
- the cost of land
- the cost of patents and trademarks
- rent or rates
You can claim up to 2 years after the end of the accounting period the R&D expenditure relates to.
If your business has received a grant or a form of financial aid, this can compromise your R&D tax claim. Under European Commission rules, companies are not allowed to receive more than one type of notified state aid for the same development work. Although rules differ, there are still ways in which UK firms can claim back their R&D spend. This article explores those rules but note, it is vital that claimants reach out to an experienced adviser before claiming financial aid to ensure the maximum support is accessed.
It is helpful to understand the different types of state aid so you can receive the maximum funding for your innovations. These are detailed below:
- Non- project-specific grant is a form of notified state aid and can be spent on anything, for example, the Coronavirus Business Interruption Loan scheme (CBILS). The limitation is that any R&D projects you spend this funding on will not be eligible for SME relief. You will have to claim for them under the RDEC scheme instead which is less generous.
- A project-specific grant is also a form of notified state aid. These provide funding for pre-agreed projects. Any tax-credit-eligible money you invest in the pre-agreed projects needs to be claimed via RDEC. Any capital you invest in eligible projects that you have not received a grant for can be claimed under the SME scheme.
- De minimis aid is a form of state aid that is capped at €200,000 over three consecutive fiscal years, and it does not count as notified state aid. You will have to claim de minimis aid funding you invested in qualifying R&D projects through the RDEC scheme. But you can claim all of your tax credit-eligible investment under the SME scheme, even if you mix your own capital and de minimis funding in the same projects.
- Non-state-aid grants are treated exactly the same as de minimis aid. The funding itself must be claimed under RDEC, but all other eligible investments can be claimed under the SME scheme. The benefit of non-state-aid grants is that there is no limit to the value you can receive. These grants are provided by the European Union or by private companies.
Claiming grants and the R&D incentive
The SME R&D tax scheme is one source of de minimis state aid and government grants are also a source of de minimis state aid. If you’ve already had a government grant for a specific R&D project you can’t then claim for that R&D project under the SME R&D tax scheme as well (i.e you cannot have multiple sources of state aid). Instead, you would have to claim for that specific R&D project under the RDEC scheme- a large company scheme that is less generous. This is because the SME scheme is a form of notified state aid, whereas the RDEC scheme is not.
Yes, our expertise also covers Creative Industries Tax Relief (CITR), which can allow qualifying clients to increase their allowable expenditure and reduce their Corporation tax liability, or convert a portion of their losses into a payable tax credit.
A company can claim CITR if it is subject to UK Corporation Tax and is directly involved in the production and development of at least one of the following:
- video games
- theatrical productions
- orchestral concerts
- museum or gallery exhibitions
- high-end television
- children’s television
- animation television