What is research and development tax relief?
R&D Tax Relief is a government initiative designed to reward UK companies for investing in innovation. Set up in 2000, there are now two schemes:
1) Small to Medium-sized Entity (SME) Scheme
2) Research & Development Expenditure Credit
If your company carries out research and development, you may be eligible for tax incentives through the scheme. Limited companies spending money on new product development or new processes, R&D into renewable energy, or making significant improvements to existing ones, may be entitled to claim.
What Costs Qualify for R&D Tax Relief?
Staffing costs include gross salaries (including wages, overtime and cash bonuses), Employer NI contributions, Employer pension contributions and certain reimbursed business expenses, which must be classed as a staffing cost and related directly to research and development activities.
Expenditure on computer software involved in Research and Development activities may be included. It must have been developed for R and D or developed to support a research project. Software partly used for R&D can be included at a reasonable apportionment.
Consumable items used in your research and developement process, such as water, fuel and power can be included in your claim. In addition, materials consumed or transformed in the R&D process can be included, such as materials used in the construction of prototypes.
The cost of any external workers employed to work specifically on any research and development project may be eligible for R and D Tax Relief. External workers are individuals provided through a recruitment company or staffing providers, such as agency staff, third party staff and contractors, or freelancers.
In the pharmaceutical industry, expenditure on clinical volunteers can be included – this is usually payment for people who are involved in clinical trials to test drugs as part of a research and development project.
This applies to subcontracted R&D under the SME scheme only. Payments to universities and non-corporate bodies are eligible under RDEC.
(RDEC only) These are payments made by large companies to other organisations carrying out their eligible projects. The rules stipulate that the recipient must be carrying out research relevant to your industry and must be a qualifying body, such as a scientific research body, a charity or a university.
You may also be able to claim for indirect costs, which includes management time relating to the delivery of R&D work, such as line management duties. Our specialist Tax Consultants can work with you or your appointed finance team to identify eligible costs and get the best result for your company.
What are the R&D tax credit rates?
We’ve helped hundreds of businesses make successful R&D Tax Relief Claims. We have the technical expertise to determine eligibility and we can quickly and smoothly help you to submit a claim. The timing of your claim is important.
The scheme offers up to 33% (33p for every £1 spent) on qualifying expenditure. The exact rate your business qualifies for will depend on your Corporation Tax position and whether your business is profitable or loss-making.
The SME R&D Tax Relief allows companies to:
– Deduct an extra 130% of their qualifying costs from their yearly profit, in addition to the normal 100%, enabling a 230% deduction
– Claim a tax credit if the company is loss-making (worth up to 14.5% of the surrenderable loss)
To claim relief your project will need to meet the relief scheme requirements. Cooden Tax can help you to determine eligibility for specific projects and assist in making a claim. We can, in fact, determine whether there is potential in a project in an initial 15-minute phone call.
We offer a significantly reduced fee to ‘green’ businesses.
Research and Development Tax Credits FAQs
The Small to Medium Sized Entity Scheme is for companies employing up to 500 people with either an annual turnover not exceeding €100 (£86) million or a balance sheet not exceeding €86 (£74) million.
The company must be carrying on a trade, or be a new trade arising from the successful outcome of a Research & Development Project. The company must be undertaking research and development for their own benefit and not as a subcontractor.
The large company scheme has been replaced by the Research and Development Expenditure Credit (RDEC). The large company scheme was available to companies not meeting the criteria for the SME scheme up until 31 March 2016.
Your company may be eligible to claim if an R&D Project “seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty.”
Your company must be incorporated and liable to pay Corporation Tax to be eligible for R&D Tax Relief or Tax Credit.
This list is not exhaustive, but sectors likely to be able to claim include Clinical Research, Communications & Media, Construction, Cosmetics, Defence, Engineering, Information Technology, Manufacturing, Motorsport, Pharmaceuticals, Product Design and Software Development.
Other industries which may be able to claim include, Agriculture, App Development, Architects, Banking, Brewing, Electronics, Environmental Management, Food Processing, Testing, Training and Transport.
An initial consultation with one of our Tax Relief experts costs nothing. Give us a call to find out if your business is eligible for any R&D Tax Relief.
The Research & Development Expenditure Credit was introduced in 2013 to further encourage large companies to invest in R&D. RDEC has extended the reach of the Large Company scheme by enabling those who have made a qualifying loss to still submit a claim.
The Credit under RDEC is accounted as income in a company’s profit and loss. The (recently improved) 12% rate (effective 1 January 2017) translates into a net relief of 9.72% after tax.
If your company makes a loss, RDEC allows you to claim the 9.72% as a cash sum, so long as you have no other outstanding taxes due to HMRC and you have paid PAYE and NI contributions for staff involved in R&D in excess of the amount of the repayment.
To find out if your business is eligible for RDEC contact our tax relief specialists today.
As an SME if you are subcontracting out R&D work to a subcontractor you can still include these costs on your Tax Credit Relief claim (RDEC). This is regardless of whether your subcontractor is an SME, large company, individual, or qualifying body.
If you are an SME carrying out R&D work for a large company you may also be able to claim under the RDEC scheme.
The Research & Development Expenditure credit which is available to companies who don’t meet the criteria of an SME and to SME’s who have been subcontracted to by Large or International companies has recently been improved by the Conservative government. And the coalition government before that legislated for its creation and for the last improvement in the SME Scheme.
How to claim for R&D Tax Credits
To claim for R&D Tax Credits you’ll need to complete a CT600 form and submit it to HMRC. The precise calculations of your claim will depend on your exact situation. If you are a profitable SME you can expect to claim back around 25% of your research and development costs. Loss-making SMEs can claim as much as 33% back. Large companies can typically claim around 10% of R&D costs back.
There are strict criteria to qualify and only certain costs can be included in the claim. There are also different percentages applied to different categories, particularly for qualifying indirect activities.
You will need to write a convincing technical narrative along with clear financial calculations. The last piece of the puzzle is putting all of the required information together and entering it into the correct places on your CT600. It is a complex process and why so many businesses don’t bother to make a claim.
There is also the misnomer that your business needs to be in the science or technology field, which isn’t true. The R&D itself needs to be scientific or technological in nature, but businesses in any industry can make a claim.
The easiest and quickest way to find out if you qualify and to submit a claim is to speak to a specialist, such as us. We can do all of the work for you in minimal time, applying the correct formulas and writing a convincing narrative to ensure your claim has the best chance of approval by HMRC.
35K Saved from R&D Tax Relief
“We saved £35k for activities we had not realised were eligible for R&D tax relief. Simon is very knowledgeable in preparing and filing claims that provide everything the authorities need. He emphasises the important things to score on their assessments and concisely argues the point!”
How We Help
At Cooden Tax Consulting we help limited companies that are advancing the state of their industry and investing in innovation to maximise the use of the tax incentives available. Successful claims can be received as a cash payment, reduce corporation tax, or increase taxable losses.
The average R&D tax credit claim for SMEs is around £55,000, but many eligible businesses are still failing to claim.
There are over 500 pages of guidance for putting in an R&D Tax Credits claim, but our team of experts specialise solely in Technology Tax Reliefs, including the Research & Development Tax Credit and the newly legislated creative industry reliefs.