Since 2000, UK businesses have been able to claim tax relief on investments they make into research and development. The purpose is to encourage more firms to undertake R&D activity, which is seen as adding value to the economy at large.
However, uptake of R&D tax relief is haphazard, with claims that the system is hard to navigate and understanding of eligibility criteria far from universal. Here, we answer some of the questions we get asked most frequently about R&D tax credits, including who can apply, what the conditions are and what it might mean to your company.
Who is eligible for R&D tax relief?
The R&D tax relief scheme is split into two strands:
- An SME scheme for companies with up to 500 employees and a maximum £100m gross turnover or £86m in gross assets.
- The R&D Expenditure Credits scheme is available to larger businesses that don’t qualify for the SME relief or those with no Corporation Tax liability.
Companies can apply for one or the other of these options as long as they can provide evidence that they have undertaken or invested in qualifying R&D projects.
What projects qualify for R&D tax relief?
There is no clearly defined list of project types that are eligible for claiming tax credits against. Instead, HMRC rules specify two criteria:
- The project must be aiming to achieve some kind of advance in the application of science and technology to resolve issues in commerce and industry.
- The issue being tackled must be something that has no existing equivalent solution, or be something that a competent professional would not be able to resolve without the need for in-depth R&D.
The key to successfully claiming R&D tax relief is therefore being able to demonstrate that your project meets these criteria.
Does the project have to be successful or completed?
No. Businesses are entitled to claim R&D tax relief even when they have come up with no resolution or the project has not been completed, as long as they can demonstrate investment and that the project meets the above criteria.
How does it work?
SME R&D tax relief is claimed back against your Corporation Tax bill. In some circumstances, it may be paid as a tax credit. There is a long list of expenses you are allowed to claim for, including employee salaries, contractor and consultancy fees, material and equipment costs and so on – the key criteria being that all costs relate to the R&D project.
The R&D Expenditure Credits scheme works as a payable credit against a company’s PAYE/NIC liabilities and relates only to staffing overheads for employees engaged in projects.
How much can I claim?
According to the rules of the SME scheme, companies are allowed to make the normal 100% deduction of qualifying expenses from their Corporation Tax bill, plus another 130% – making a total of 230%. In real terms, that usually means you can get up to 33% of your costs back. If your company is loss-making, you can claim back a tax credit of up to 14.5% of the surrenderable loss.
Under the R&D Expenditure Credits scheme, companies can claim a credit of up to 12% of qualifying expenditure.
KJG has a specialist team for Research & Development Tax Credits, they are able to guide and advise you if you have a claim, they can also process the claim and appeal a claim if it gets rejected. Contact them today on 0161 832 6221 or email [email protected]