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There are thousands of pounds being lost in tax relief by eligible companies every year. This reflects the common misconception that Research and Development (R&D) is confined to manufacturing plants, tech giants or research laboratories, when in reality, the ideas and inspirations that move industries forward have their roots in everyday innovation by the professionals on the ground.
R&D tax relief is the Government’s way of rewarding businesses that invest in innovation. This innovation can be in the form of developing new or improving existing products, processes, services, devices and materials or advancing the state of knowledge in their sector.
The following are some common examples of research and development that qualify for R&D tax credits.
In the UK, the Research and Development (R&D) tax relief is designed to encourage innovation by providing tax incentives for companies engaged in qualifying R&D activities. The definition of qualifying R&D is broad and not limited to specific business sectors. Instead, it focuses on the nature of the activities being undertaken.
To qualify for R&D tax relief in the UK, a company must be engaged in projects that seek to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty.
It’s important to note that these examples are not exhaustive, and the eligibility of a specific project for R&D tax relief is determined by the nature of the R&D activities being carried out. It’s advisable for businesses to consult with tax professionals or HM Revenue & Customs (HMRC) to ensure that their activities meet the qualifying criteria for R&D tax relief. The eligibility criteria and rules may also be subject to change, so staying informed about the latest regulations is crucial.
Research and Development (R&D) reliefs support companies that work on innovative projects in science and technology. It can be claimed by a range of companies that seek to research or develop an advance in their field. It can even be claimed on unsuccessful projects.
The work that qualifies for R&D relief must be part of a specific project to make an advance in science or technology. It cannot be an advance within a social science – like economics – or a theoretical field – such as pure maths.
The project must relate to your company’s trade – either an existing one, or one that you intend to start up based on the results of the R&D.
To get R&D relief you need to explain how a project:
Your project may research or develop a new process, product or service or improve on an existing one.
Your project must aim to create an advance in the overall field, not just for your business. This means an advance cannot just be an existing technology that has been used for the first time in your sector.
The process, product or service can still be an advance if it’s been developed by another company but is not publicly known or available.
You should explain why a professional could not easily work out your advance.
You can do this by showing that other attempts to find a solution had failed.
You can also show that the people working on your project are professionals in that field and get them to explain the uncertainties involved.
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 – even after referring to all available evidence.
This means that your company or experts in the field cannot already know about the advance or the way you achieved it.
You should show that the R&D needed research, testing and analysis to develop it.
You need to be able to explain the work you did to overcome the uncertainty. This can be a simple description of the successes and failures you had during the project.
For SMEs i.e. those with less than 500 staff or a turnover of under 100 million euros or a balance sheet total under 86 million euros
You may need to include linked companies and partnerships when you work out if you’re a SME.
SME R&D relief allows companies to:
Larger companies i.e. those exceeding the SME thresholds, above, can claim a Research and Development Expenditure Credit (RDEC) for working on R&D projects.
The credit is calculated at 13% of your company’s qualifying R&D expenditure (this rate applies to expenditure incurred on or after 1 April 2020) and is taxable. Depending if your company is profit or loss making, the credit may be used to discharge the liability or result in a cash payment.
You can claim costs on the project from the date you start working on the uncertainty until you develop or discover the advance, or the project is stopped.
Staff costs
For staff working directly on the R&D project, you can claim a proportion of their:
You can claim for administrative or support staff who work to directly support a project (for example, specialist cleaning staff). You cannot claim for clerical or maintenance work that would have been done anyway, like managing payroll.
You can claim 65% of the relevant payments made to an external agency if they provide staff for the project.
Subcontractor costs
Subcontracted expenditure cannot be claimed unless it is directly undertaken by:
Consumable items
You can claim for all consumable items used up in the R&D. This includes:
Costs that cannot be claimed
You cannot claim for:
The project starts when you begin working to resolve the uncertainty. You will need to identify the technical issues that need to be resolved, and make sure there is not an existing solution that has already been worked out.
The project ends when you solve the uncertainty or stop working on it. The period you claim R&D expenditure credit for should end once you have a working prototype that solves the problem, and before you go into production.
Your R&D may restart if you find another scientific or technological uncertainty after you have started producing the product. If this happens, you can claim for another period of R&D while you try to resolve it.
You can make a claim up to 2 years after the end of the accounting period it relates to.
You will need to provide a short summary that explains how your project:
If you are claiming the credit on:
You will also need:
Our financial advisors are here to support you. If you have questions, please do not hesitate to contact us and we will get back to you within 24 hours, but usually much quicker.
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