What is R&D Tax Credits? We explain in simple terms

Research and Development (R&D) tax relief initiative supports companies that work on innovation in the field of science and technology. Tax relief can be claimed by companies that are looking for funds to support their research or develop an advance in their field. It can be claimed even on projects that are not successful. You are eligible to claim tax relief if your project meets the eligibility criteria as defined by HMRC.

Projects that count as R&D

Projects that work in the area of science and technology making an innovative advancement qualify for R&D relief. The qualified work for R&D relief must be entitled to a specific project to bring innovation in science and technology. Innovation in the field of social science is not considered eligible for tax relief.

To get R&D relief your project needs to fulfill the following parameters:

Your project may research or develop a new product, service or process or help in the improvement on an existing one.

Innovations in the field

Your project must target to innovate in the field that it is related to and not just only benefit your business. This means an advance cannot just be an existing technology that has been used for the first time in your sector. The product, service or process will still be considered an innovation even if it is created by some other company and is not popular.

Convince that a professional in the field could not work this out

You need to convince why an existing professional in the field could not work out the innovation proposed in your project. Explain why a professional could not easily work out your innovative proposal. Prove by showing that other attempts to find a solution failed.

Demonstrate that the people in your project are professionals of the field and explain the uncertainties affecting the results.

Show there was uncertainty

Show uncertainty in the field since it only exists when a subject matter expert can not conflict with the technical possibilities of proposed innovation.

A scientific or technological uncertainty exists when an expert on the subject cannot say if something is technologically possible or how it can be done after referring to all available evidence.

Explain how you tried to overcome the uncertainty in your project as you need to show the R&D project needed to go through the phases of research, analysis or testing to develop it.

Explain the strategies you took that helped you overcome the uncertainties in your project. You can simply explain the success and failure of your project.

Understanding R&D tax credits

Research and development (R&D) tax credits program is an initiative taken by the government to give incentives to companies investing in the field of innovation. Research and Development projects is a valuable source of income stream for businesses to invest that helps them accelerate hiring process consequently leading to growth.

How do R&D tax credits work?

Projects that invest in the development of new services, products or processes are eligible for R&D tax relief. Your project can receive cash payment if you have invested on innovation. If you are creating the claim for the first time to claim tax relief, you can file it for the last two completed accounting periods.

How to know your eligibility for R&D tax credits?

To be eligible for R&D tax relief and avail the benefits of this incentive, you must fulfill the following criteria:

Who qualifies for R&D tax credits?

R&D is open to all areas for innovation and does not restrict any domain.

What costs qualify for R&D tax credits?

The following costs qualify for R&D tax credits:

What R&D tax credit incentive is right for my business?

The use of incentive for the creation of R&D claim will solely depend on whether you are an SME or RDEC.

SME R&D relief

It allows companies to:

If you are classed as an SME for R&D tax credit purposes, your next step will be to make a claim via the SME R&D tax incentive. And if you are a large company, via the Research and Development Expenditure Credit (RDEC).

Research and Development Expenditure Credit

Large companies can claim tax relief for the work they have done on R&D. It can be claimed both SMEs and Large companies who have been subcontracted to do R&D work.

The RDEC is a tax credit, it was 11% of your qualifying R&D expenditure up to 31 December 2017. It was increased to:

However, there are some limitations that can affect the incentive received by SMEs. In that case you will need to create the claim via RDEC or both incentives in order to receive tax relief.

How much is an R&D tax credit claim worth?

R&D tax credits are calculated based on the R&D spend of your project. to calculate R&D credit for your claim you need to identify qualifying expenditure for the project.

Your expenditure will lead to the following:

R&D tax credit rates

SMEs are able to claim up to 33p for every £1 spent on qualifying R&D activities. The average claim made by SMEs in the UK is £57,228 (2018-19).

Large companies are able to claim up to 11p for every £1 spent on qualifying R&D activities. The average large company (RDEC) claim in the UK is £632,931 (2018-19).

The benefits of R&D tax credits

As a form of innovation funding, R&D tax credits can transform your business. At RnD Tax Claims, we are passionate about helping innovative companies realise the full potential of R&D tax incentives so that they can grow. This is because the benefits are wide-reaching.

The government benefits from increased productivity which is good news for businesses based in UK, and good news for the economy. It can also lead to innovation that can effect positive change on a global scale.