In recent years, there has been an eruption of Research and Development (R&D) activities by companies across a variety of sectors, intent on pioneering change by implementing radical changes and introducing innovative new sciences and technology.
To encourage continued development, the Government offers a tax benefit in the form of R&D tax credits. A really valuable asset, R&D tax credits essentially help businesses accelerate their R&D activities by offsetting the expense incurred and providing the infrastructure to encourage continued growth.
But quite often, we find many businesses do not realise they qualify to apply for a R&D tax relief, or they find it a complex arena to navigate. To help demystify the ins and outs of the tax relief, we have put together a list of the most frequently asked questions.
What is R&D tax relief?
Research and Development (R&D) is a valuable tax relief that can generate significant cash repayments from HMRC for SME’s and large corporates.
R&D tax credits are one of the government’s top incentives to encourage investment in research and development activities. They were designed to encourage innovation and allow up to 33.35% of a business’s R&D spend to be recovered as a cash repayment.
What qualifies for R&D tax relief?
For a project to qualify for R&D tax credit purposes, it must seek to achieve an advance in overall knowledge or capability in a field of science or technology that couldn’t be easily overcome by a competent professional in that field.
If you are creating a product, undertaking extensive design work, or delivering a solution that involves resolving complex uncertainties, you could be undertaking qualifying R&D activities.
What types of industries can claim the relief?
Any business operating in any sector can be eligible for R&D tax credits if it is innovating, developing or improving a product or service. The key is that your project must contain some technical uncertainty and seek to achieve an advance in science or technology.
Examples of industries that may be eligible include:
- Manufacturing and Engineering
- Food and Beverage
- Software Development
How much can I claim?
The amount of credit that can be claimed is dependent upon the size of your company.
Our R&D tax credits calculator, launched in partnership with specialist R&D independent consultants TBAT, will help you get a quick estimate of your potential claim value. The new R&D online portal allows you to submit key data to work out whether you may be eligible to submit a claim, making the whole process quicker, easier and much more accessible. The numbers do not need to be perfect – approximate values will work to give you a ball-park figure on how much R&D tax relief you could receive from HMRC.
What costs can I claim?
The costs that can be claimed under R&D include:
- Payments to third parties who provide staff to assist in the R&D process
- Materials consumed during the R&D process
- Qualifying Indirect Activities – such as training, research, security where directly relevant to the project
- Capital expenditure
How far back can I claim for R&D tax relief?
A claim for R&D tax relief can be made at any time within two years of the end of the accounting period in which the expenditure was incurred, so even if you have already filed your tax return for the relevant year, it may still be possible to make a claim.
Do failed or incomplete projects qualify?
Even if the project was not successful, a claim can still be made providing the project qualified. An unsuccessful project will demonstrate that uncertainty existed and could not be resolved – something that is key to making and R&D claim.
Can a R&D claim be made if a company is loss making?
If the company makes a loss for tax purposes, it can surrender the loss generated as a result of the R&D expenditure for a repayable tax credit at 14.5%. It is also possible to carry extra losses forward to offset against future profits.
How could COVID-19 impact my claim?
Government support measures introduced as a result of COVID-19 may interact with and impact your R&D claim.
The actual effect may depend on whether you have:
- Entered into a time to pay arrangement with HMRC
- Received and used funds under the Coronarvirus Business Interruption Loan Scheme (CBILS) or Bounce Back Loan Scheme for R&D Purposes
- Received funding from other commercial schemes such as the Future Fund
We would advise you to get in touch with our dedicated experts who can review how your claim may be impacted in the context of your specific situation.
How do I make a claim?
Making a claim is a complicated process, where the eligibility criteria is drawn fairly widely, so we would always advise seeking expert advice. Our specialist tax team has considerable experience assisting a variety of clients with R&D tax credit claims. We can work with you to submit the best possible claim for your company, ensuring the optimum outcome.