Research & Development (R&D) Tax Credits

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We have managed to save our clients several hundred thousand pounds through reduced corporation tax and repayments.

 You could be missing out on substantial tax relief if you have created a new process or service. Many business owners are still unaware of the relief and whether the work they do qualifies. We have a proven track record of successful claims and can advise companies how to maximise their claim to include all eligible R&D costs.

The Government encourages innovation

The UK Government recognises that encouraging innovation is a vital component in a strategy for improving the UK’s productivity, performance and competitiveness. As a result, the research and development (R&D) incentives for both small and medium size enterprises (SMEs) and large companies have been enhanced in recent years to encourage and reward greater innovation in the UK.

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.

You may be able to claim Corporation Tax relief if your project meets HMRC definition of R&D.   

What this means for small companies

The R&D tax credits available to small and medium enterprises (SMEs) have been substantially increased over recent years. The super-deduction available has increased to 230% from 1 April 2015 with the cash back available to loss making SMEs now 33.35% of the qualifying expenditure.

The rise in the rate of relief for SMEs means that the cash value of claims for tax paying companies is £26 for every £100 of R&D spend from April 2015 (based on a 20% tax rate) and £33.35 for companies with losses.

These changes have made claiming R&D credits a lot more valuable to SMEs.

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Projects that count as R&D

The work that qualifies for R&D relief must be part of a specific project to make an advance in science or technology. It can’t be an advance within a social science like economics or a theoretical field like 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: 

  • looked for an advance in science and technology

  • had to overcome uncertainty

  • tried to overcome this uncertainty

  • couldn’t be easily worked out by a professional in the field

Your project may research or develop a new process, product or service or improve on an existing one.

Show that you looked for an advance in the field

Your project must aim to create an advance in the overall field, not just for your business. This means an advance can’t 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 isn’t publicly known or available.

Explain how you tried to overcome the uncertainty

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.

Show there was uncertainty

You should be researching or developing something that isn’t known to be scientifically or technology feasible when you make or discover it.

This means that your company or experts in the field can’t already know about the advance or the way you achieved it.

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

You should explain why a professional couldn’t 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.

Making a claim

Small and Medium sized enterprises (SME) R&D Relief

You can claim SME R&D relief if you have a limited company with:

  • less than 500 staff

  • a turnover of under €100m or a balance sheet total under €86m

SME R&D relief allows companies to either:

  • deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total 230% deduction; or

  • claim a tax credit if the company is loss making, worth up to 14.5% of the surrenderable loss.

The claim is made within the CT600 Corporation Tax return and the technical report in support of the claim is attached to the CT600.

A claim must be made within two years of the end of the accounting period to which the claim relates. For example a claim for the year ended 31 March 2018 must be made by 31 March 2020.