R&D Tax Credits: Are You Missing Out?

Research and development (R&D) tax credits are designed to encourage UK companies to invest in R&D. R&D tax credits provide a welcome boost to those companies that use their resources for innovative projects – even if those projects are unsuccessful. Many projects are eligible for this relief, but around two thirds of eligible companies fail to claim it.

Businesses around the UK work to create innovative products, services and technology on a daily basis, and they deserve to have their innovation rewarded. Here is everything you need to know to claim this valuable relief.

R&D tax credits reliefs are awarded to companies which invest in R&D. These projects must aim to make an advance in science or technology. This does not include social sciences (such as economics) or theoretical fields (such as pure maths). The project must also relate to your company’s trade.

If your business has invested in an advancement such as this, you may well be eligible for R&D tax credits reliefs. To do so, you need to explain how the project has led to improvement. There are various sections that you will need to cover, outlined below.

Your project will need to aim to advance the whole field, not just your own company.  This means that you can’t use an existing technology for the first time in your sector and claim relief – you need to provide a utility.

For a project to be eligible for R&D tax credits, you need to be able to show that it is not something that another professional in the field could easily work out. For example, you could evidence times when other professionals have failed to find a solution to this particular problem.

If a professional looked at all of the evidence and couldn’t say whether or not a project was technologically possible, there would be uncertainty. This means that you cannot be certain of the result before you embark on the project.

This is essentially outlining the R&D process that you followed (or will follow) – for example, through research, testing, analysis and development.

Small and medium-sized enterprises (SMEs) are able to deduct an additional 130% of qualifying costs from their yearly profit on top of the normal 100%, leading to a 230% deduction. R&D tax credits reliefs are also available if the company is loss-making.

The types of costs which can be claimed for include salaries of employees working on the project, subcontractor costs, software, consumable items and payments to volunteers in clinical trials. To be eligible, the company must have less than 500 staff and a turnover of €100m or a balance sheet total under €86m.

The R&D tax credits can provide welcome relief to a company’s balance sheet and ensure that they can afford to continue R&D work.

Large companies are able to claim R&D tax credits reliefs known as aResearch and Development Expenditure Credit (RDEC). The credit is currently worth 13% of qualifying R&D expenditure. The qualifying costs are similar to those for small businesses, and do not include items such as the cost of land, the cost of patents and rent or rates.

The claim can be made up to two years after the end of the accounting period it relates to.

If your project has not been designed to make an advancement in science or technology, then it won’t be eligible for R&D tax credits reliefs. However, the technology definition is broad and many companies will have fulfilled this element without realising it.

The costs that can be claimed have to be directly related to the R&D project – but this can add up to a large amount, particularly for SMEs and other businesses where salary costs make up for a large part of their balance sheet.

If you are unsure about whether or not you are able to make a claim for R&D tax credits, it is important to check your eligibility. If you don’t, you could be missing out on valuable R&D tax credits reliefs for your business. At Areande, we are experts on innovation tax relief – so you can leave your claim to us while you focus on your business. You can check your eligibility and potential claim amount using our calculator here.