R&D tax credits, also known as Research and Development tax credits, are the incentives given to businesses that are involved in innovation. This UK tax relief offers essential funding to businesses which can be used for spending on the development of new products or improvement of the existing ones. In this relief, your company is given the chance to claim back a part of your R&D expenditure as tax credits. As a result, your tax bill will be lessened, or your taxable losses will be expanded. Regardless what industry your business is involved with, if you have research and development expenditures, then you are qualified to claim R&D tax credits.
So how can you determine if your business is eligible for R&D tax credit relief? It is a fact that research and development is the key in keeping your business competitive. If companies do not have any R&D programs, companies will find it difficult to survive in the market. Most probably, they will just rely on acquisitions and mergers for their innovation. With the R&D Tax Credit scheme, businesses are allowed to turn their new ideas into new products or make enhancements on their existing products. However, before you can take advantage of this tax relief, there are certain conditions that you must meet.
Businesses that are interested in claiming R&D tax credits must comply certain requirements. There is no need to worry since we can help you in identifying if you are eligible. If you want to find out if you can qualify, then you can verify your eligibility below.
If you need some advice, then you can always get in touch with us. We can help you determine if you are eligible for R&D tax credits.
What are some of the activities that can qualify your business to claim R&D tax credits? Whether you are manufacturing your products in the lab or you are improving a certain manufacturing process, the most important thing is you are creating an advancement in science or technology, then you could be eligible for R&D tax credits. Your project could involve developing a new product, service, or process.
To help businesses, HMRC offers a guide on the kinds of activity that has to be existing in the project so it can be eligible for the tax relief:
If you want to know how much you can claim, then you have to know what can be counted as R&D? The most important part of your R&D tax credits application is understanding what you can and can't claim for. In most cases, you can claim R&D relief on revenue spending, for instance, your daily operational costs, excluding capital expenditure, which is your expenses for fixed assets including land, buildings, etc. Unfortunately, the money spent on making a trademark as well as the money spent on the production and distribution of the products and services are not included.
To help you understand, here are some of the important areas which you can include in your claim:
This refers to the staff who are directly involved on the R&D project including their gross salaries that comprises their wages, overtime, bonuses, employer pension contributions, employer NI contributions, as well as reimbursed business expenses. Although, you can also include subcontractors and independent contractors on your claim, however, there are certain rules on what you can include in the claim.
These are the materials and other resources that were used during the R&D process. For instance, power, water, and fuel can be included in your claim. Can I include all the material costs in my claim? The costs could either be claimed as a whole or only a part of it. However, you won’t be able to make a claim for materials that were not used for the R&D process or consumed for the products sold to customers.
This includes the software that was required for R&D process or R&D activities as long as it is developed or bought mainly for the R&D project. Can I claim for the entire cost of the software? In case the software was only partly used for the R&D project, then the cost should be computed accordingly. On the other hand, general software including ERP, Microsoft Office, MRP, website hosting, and email hosting are excluded from the claim.
If you outsource a part of your R&D project to another company for a certain amount, then this cost can be included in your claim. How much can I claim? Up to 65% of the subcontracted R&D costs can be claimed, however, it should be based on the SME scheme.
Most often, this is only applicable to pharmaceutical firms. This refers to the amount being paid to volunteers who are involved in clinical trials. These are eligible costs that can be claimed.
Perhaps you must be wondering how much you can claim. Well, it all depends on certain factors and here are some of them.
The amount of money that you can claim will greatly depend on the scheme that your company will qualify for. Typically, there are two major types of schemes and you can find them below. Mainly, they differ on the amount that you pay for your Corporation Tax, the size of your company, and whether your business is earning some profit or losing some money. Regardless what type of business you are involved with, making a R&D claim can still be beneficial to you. In fact, SMEs can receive between 14.5% and 33% of return.
Businesses that can qualify for the SME R&D tax credit scheme are those that have less than 500 employees and has a yearly turnover of not more than €100 million or about £86 million. They can also qualify if their balance sheet is not more than €86 million. In this scheme, businesses get the chance to offset up to 33% of their R&D costs from the payment of their Corporation Tax. Also, in some instances, the amount can be obtained as a cash credit from HMRC.
As an SME, there are some factors that can influence your claim. You have to make your claim through the RDEC scheme or both if you are receiving subsidy, grant, state aid or hiring subcontractors to help you with your R&D project. Additionally, if the number of your staff is less than 500, yet your gross asset and turnover exceeded, then your business will be categorised as a big company for R&D relief. Because of this, you will be advised to use the RDEC scheme.
If you are having some problems in understanding which category your business may fit in, then you can speak to us so that we can discuss the specific needs of your company.
The RDEC scheme, which is also known as the Large Company scheme, is designed for companies that have 500 or more employees, a balance sheet that exceeded €86 million, and earn a revenue of more than €100 million. In this scheme, the business can obtain a tax relief of approximately 12% of your R&D expenditure. This means that you will obtain 10p for every £1 spent on eligible R&D activities. With regards to the SME scheme, you can offset the amount to your tax liability, but it can also be payable in cash.
In order to help you make your claim, we will provide you with our four-step process. With our experience and intuition, we can help you obtain the best results. We have the expertise in understanding the rules and regulations of HMRC. By combining this with our knowledge in taxation, we can provide you with the best advise so you can return the funds that you claim back into your business.
This four-step process can help in analysing your business so you will have a better understanding on the amount of money that you have incurred that could be eligible for tax credits.
We understand that every business is unique. So, one of the most essential parts of our process is to know you and your business. In this way, we will know what is important to you, what is your current position in the market and how far do you want to go. Simply contact us by phone or visit us in our website. We know that time is the essence, so we can be flexible in working with you. We are going to explain to you our processes so we can work together successfully.
In preparing your claim, we require more input from you. You need to provide us the details of what your company does. This will help us identify if your products or services can qualify for the scheme. With our expertise and experience, we can quickly identify the factors involved in creating your new process, products, or services. By observing your daily activities, we can discover ways in maximising your claim.
The technical report that we are going to generate will include all the processes affecting the creation of the product, or service along with the costs involved. HMRC requires a certain level of detail to be incorporated in the report. We can assure you that our report will include these. Don’t worry, before we submit the report, we will let you review it.
Our main objective is to ensure that you can maximise your potential in modernisation and receive the highest R&D tax relief if possible. When submitting your claim, we will also include an assessment of the financial status of your company.
After you have signed the report, we will submit them to HMRC right away. We really feel confident in our process and in case HMRC has any questions, then we will be the one to answer them for you on your behalf. Also, we will regularly update you on the progress of your claim. After the claim has succeeded, we will provide you a detailed explanation on the computation.