Research and development (R&D) tax credits are available for all small and large businesses that are innovating to solve a problem that is uncertain in outcome, yet most of the available funds remain untouched and unclaimed by businesses.
These R&D tax credits are available in all sectors and can be claimed against the development of new systems within your own company. Many businesses simply do not realise that they are carrying out R&D processes that entitle them to as much as 33p in every pound spent on R&D as a tax credit.
Tax credits can allow a growing company to receive cash payments or tax reductions calculated in relation to the amount they have spent in creating something that is both new and innovative. On average, the HMRC payout for R&D in business is £50,000, yet most businesses are unaware of how they can claim and fail to claim this money back. Here we explore which innovations qualify for R&D tax credits so that you can use F.Initiatives to claim back the funds that you have earned.
What is R&D in business
Research and development in business starts when a project seeks an advance of science or technology to solve a problem. Importantly, there must be some uncertainty in the success of the innovation and some doubt as to how the resulting innovation will help or impact on the company processes. Research and development is considered to be complete at the point at which the uncertainties have been overcome. Further developmental stages following on from this – including testing and marketing development – are not considered to be part of the research and development process.
To qualify for an R&D tax credit, you must have set out to achieve an advance in processes that relate to the field of either science or technology. It does not have to be a ‘white coat’ science as such but can include developmental areas such as recipes, data science and design. The development sought cannot just be a development in the company’s knowledge; it must be a development in the overall knowledge of something new. Where trade secrets protect a certain process or science that already exists, Research and Development credits can still be claimed as there is no ability to access the knowledge and it has to be discerned within the company.
You can still apply for credits on R&D that failed and left you with no resultant innovation because research is not always successful. The key is that you are trying to solve a problem for which there is no existent, available or suitable solution.
One of the most common forms of R&D in business is in the development of their customer management software. As most companies develop a system from a pre-existing template or build their own CRM systems from scratch, this qualifies as R&D and innovation to achieve a specific goal through uncertain development. Many companies carry out R&D without ever realising they are doing so.
What exclusions are in place for R&D credits?
The most basic exclusion from R&D credits is the routine copying of existing processes or services. If the process or production is something that you have done before, or have learned from others, there is no research and development taking place. Likewise, work to improve an existing service or process is not normally counted as research and development. If you are using application of technology to achieve a better result, however, then this can still qualify.
The final exclusion is in the market testing and marketing stages of the development. Research and Development is deemed to have ceased when the tests have been completed and the results of the test have been concluded. Once you know that you have a scientific solution to the problem you set out to solve, the research is complete and costs are no longer suitable to claim against R&D credits.
What costs can qualify for R&D credits?
Once you’re sure you will qualify for R&D credits, you will often be pleasantly surprised by the amount that you can claim back as R&D tax credits. The credit for SMEs will cover between 26% and 33.35% of your spending relating to all aspects of the development. This includes the cost of staff working on the research and development, the materials used, the systems used and the consumables used to reach your end goal. All of these costs can be calculated into the rebate and can be claimed back to give your business a financial reward for taking steps to innovate and improve the systems.
If you think you may qualify for Research and Development tax credits, contact us at F.Initiatives today. Our expert team is highly qualified and experienced in helping companies to claim tax rebates for research and development.