Research and development (R&D) tax credits are a form of government tax relief designed to reward UK companies that invest in innovation. Companies who choose to spend money on developing new processes, services, or products — or instead of working to enhance existing ones — can be eligible to receive a payment and/or a reduction in their Corporation Tax.
With R&D tax credit rates, companies can claim up to 33p off every £1 of qualifying R&D expenditure. This is a useful alternative for many businesses to lobbying for innovation grants in order to find the funds to carry out research and development.
Payment from HMRC is, in most cases, swift, as companies can usually expect to receive their R&D tax credits within 28 days of the claim being submitted — pending the money arriving and clearing in the company bank account. Corporation Tax repayments can be a much speedier process, sometimes coming through inside a week of the claim being filed, while a claim from a larger company can take longer due to the potential complexities of the business.
Who can make a claim?
For R&D tax credit purposes, an SME is a company with fewer than 500 employees and an annual turnover of under €100 million (or a total balance sheet lower than €86 million). Beyond this, tax relief can be claimed by any SME that is an incorporated company conducting innovation. The definition of what constitutes research and development is broadly defined, so it’s worth any business checking whether their activities qualify.
What qualifies as R&D?
The HMRC specification for what constitutes R&D are broad: no matter the size or industry of your company, if it’s taking a risk to “resolve technological or scientific uncertainties”, then you may qualify for R&D tax credits. This can include when you change or modify an existing process, product or service, and are not certain that the project is technologically or scientifically possible, or simply do not know exactly how to practically achieve it.
Your company’s R&D doesn’t have to come to a successful conclusion to qualify, while work done for a client can qualify just as fully as your own company’s projects. If you have the records, it’s well worth checking whether your activity qualifies for making an R&D tax credits claim.
What R&D costs can be claimed for?
When preparing to file an R&D tax credits claim, the following types of expenditure are the primary areas which will reliably qualify:
Staff expenditure — this includes salaries, employer’s National Insurance Contributions and all pension contributions. All expenditure related to subcontractors, freelancers, materials and all consumables including electricity and heat. There is also a range of software that qualifies, though this depends on the area and particular type of software used.
What records are required in order to make an R&D tax credit claim?
HMRC’s official stance accepts that claimants might not have detailed records supporting all of their research and development work. This means that companies aren’t prevented from making a claim without specific records of their R&D, but some documentation will be required — and a judgement will be made case by case when there is less supporting evidence. If a company is a repeat claimer, they’re expected to begin keeping appropriately detailed records.
Due to the fact that R&D tends to be carried out in a systematic manner, HMRC does expect some level of company records of the work; this is often in the form of planning material, however, there are not any defined recordkeeping requirements for making an R&D tax credit claim, as records are expected to vary across companies and sectors. Detailed records can increase a claim value, so ideally your tax credit claim will have thorough logs of the R&D work and expenditure that are recorded in real-time.
If your company doesn’t have any specific records detailing your R&D work, then it’s still possible to make a claim. Even if you didn’t realise that your project qualified for an R&D tax claim, it’s possible that these projects are traceable even if no formal records are kept. Records can often be put together to form an R&D tax credit claim.
Make your R&D tax credits claim with F. Initiatives
With a consulting service comprised from a team of industry experts, we are confident that we can meet all clients’ needs when it comes to funding innovation. We strive to give flawless client service and carry core values of accuracy, professional, efficiency through a warm and friendly approach.
Our R&D tax advisers take the time to visit your company, in order to help us put together a quality and accurate R&D tax credit claim. Contact us today to organise a meeting and find out more information about how we can help your company to claim back on the innovation carried out.