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What sort of project qualifies for R&D Tax Relief?

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The R&D tax credit scheme offers limited companies in the UK the opportunity to claim tax relief on qualifying research and development projects and expenses in the scientific and technological realm.

It could provide a corporation tax deduction or vital extra cash for businesses at this time of severe financial difficulty, so what exactly are R&D tax credits and how can you claim them if your company is eligible?

What is R&D Tax Credits?

The UK government is keen to encourage companies to engage in research and development activities, with two R&D schemes currently in operation for qualifying businesses.

  • Research and Development Expenditure Credit Scheme (RDEC)
  • The SME Scheme

If you’re a UK limited company and spend money on developing new products or systems, or expanding/developing existing processes or products, you may qualify for one or both of these schemes.

What is the RDEC scheme?

The Research and Development Expenditure Credit Scheme is used mainly by larger companies, although some SMEs also use it. SMEs that receive state aid, grants, subsidies, or subcontract qualifying R&D activities, may be eligible.

What is the SME Scheme?

The SME Scheme for R&D is generally used by smaller companies. HMRC regard a company as an SME if it has fewer than 500 employees, and either a turnover of less than €100 million or a balance sheet total of less than €86 million.

It doesn’t matter which industry you operate in – if your company is undertaking scientific or technological research and development activities, you may be able to benefit from extra cash or a deduction to your corporation tax.

How can you claim R&D?

You can make a research and development tax credit application on your company tax return (CT600) by including the total amount of qualifying expenditure. It’s also possible to backdate a claim by two accounting periods.

You can claim research and development tax credits even if you’re a loss-making business. If the business has a surrenderable loss, you may be able to receive a tax credit of 14.5% of the sum surrendered.

HMRC aim to process R&D tax claims within 28 days, but the complexity of a claim and availability of supporting information can be a factor. This is why it’s highly advisable to submit a report to HMRC detailing your project and the expenses you’re claiming, as this can speed up the review and payment process.

Claiming R&D tax credits is a complex procedure, but our R&D specialists can help you make your application - just contact our Advisory team at Real Business Rescue for free independent advice.

What sort of project qualifies for R&D?

Projects that make advancements in science or technology typically qualify for R&D relief. HMRC’s definition is as follows:

“Work that advances overall knowledge or capability in a field of science or technology, and projects and activities that help resolve scientific or technological uncertainties, may qualify for R&D relief.”

Projects might include engineering design, for example, innovative new methods of construction, software development, new agrifood technologies, or advances in clean technology. There should be a fundamental uncertainty as to the outcome of an R&D activity, in that the problems experienced cannot be solved using existing knowledge.

You also need to consider when the project starts and finishes - when the uncertainty was first identified and a solution was found or the project ended – this determines the amount of R&D relief you can claim.

What research and development expenses are claimable?

R&D tax credit qualified expenses include:

  • Staff costs, including salaries, employer pension contributions, and employer NICs
  • Subcontractor and freelancer fees
  • Consumables related to the R&D activities, such as heat, light, and power
  • Materials used in the project
  • Some software costs

What are the R&D Tax Relief rates?

Tax relief on the RDEC Scheme

Paid as a tax credit:

  • 1st January 2018 to 31st March 2020: 12% of qualifying R&D expenditure
  • From 1st April 2020: 13% of qualifying R&D expenditure

Tax credit rate on the SME Scheme

On this scheme you can:

  • Deduct 130% of qualifying costs from your annual profits, in addition to the usual 100% deduction
  • Claim a tax credit equivalent to up to 14.5% of your surrenderable loss if you’re a loss making business

Real Business Rescue can help you make a claim for R&D tax relief. You can get free independent advice from an R&D specialist in our Advisory team – we operate a network of offices throughout the country, and can offer you a free same-day consultation.

Keith Tully

Partner

0800 644 6080
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