Your business thrives on innovation. It’s what allows you to distance yourself from your competitors and provide greater value for your clientele. It ensures that your reputation remains stellar and that you are widely regarded within and beyond your chosen industry.
Still, it’s not always easy to innovate. It requires a sustained investment in your own research and development (R&D). While big businesses have big budgets and lavish resources to invest in R&D, their Small to Medium-Sized Enterprise(SME) counterparts may find it significantly more of a struggle. Not all SMEs are able to find R&D while also keeping up with the day-to-day realities of business operations.
As such they may feel as though they have to make a choice. To be profitable or to be innovative.
Fortunately, there is help. Thanks to R&D Tax Credits administrated by HMRC, smaller businesses are able to ameliorate the cost of investing in innovation.
What are HMRC R&D Tax Credits?
HMRC R&D Tax Credits have actually been around for 20 years now. They were first introduced by the government in 2000 to drive innovation in the private sector, especially for smaller businesses. Indeed, for 2 years these Tax Credits were exclusively available for SMEs, although larger companies were able to claim via a different scheme as of 2002. Tax Credits come in the form of Corporation Tax relief or cash payments.
There are 3 kinds of R&D Tax Credit schemes. One for SMEs, one for larger businesses and Research & Development Expenditure Credits (RDEC) which are available to both.
As of April 2015, Small to Medium sized businesses are able to claim up to 230% of qualifying R&D expenditure.
What kinds of businesses can apply for R&D Tax Credits from HMRC?
All kinds of businesses are able to apply. Innovation can occur in any industry in any sector. All you need to do to claim under the SME scheme is to meet HMRC’s definition of a Small to Medium sized Enterprise. This means you will have 500 employees or fewer, and your annual turnover will not exceed £100 million. Note that this refers to turnover rather than profit.
Some small businesses in their early years of trading may have yet to turn a profit and thus will not have paid any Corporation Tax. If this is the case for your business, you are still entitled to apply for R&D Tax Credits even if you have made a loss in the financial year. You can also claim retroactively for up to 2 previous year’s spending on R&D. So you will be able to apply for relief on 2018-2019’s R&D spending in the 2020-2021 tax year.
What is HMRC’s definition of R&D expenditure?
HMRC have a very specific definition of what constitutes R&D expenditure and what expenses can be claimed for through R&D Tax Credits. While you can find more information in This PDF, HMRC defines a project as R&D if;
- It advances the science or technology of your business
- It improves your business’ knowledge or capability in the field of science or technology
- It is not an effort to improve commercial innovation (e.g. market research)
- It involves a degree of scientific or technological “uncertainty” which cannot be resolved by a competent professional
- It is unrelated to social sciences (including economics)
Often there will need to be some communication between businesses and HMRC to ascertain whether activities do or do not constitute R&D.
What expenses can be claimed for?
Businesses cannot claim for land (e.g. laboratory space) or equipment/plant via R&D Tax Credits. They can, however, claim for a range of other expenses pertaining to Research and Development including;
- The cost of software used directly for R&D
- Staffing (but not support / administrative staffing)
- Up to 65% of subcontracted R&D costs
- Paying volunteers for clinical trials
- Costs associated with developing and fabricating prototypes
The caveats of claiming
R&D Tax Credits represent a tremendous opportunity for UK businesses of all shapes and sizes. However, the claims process can be long drawn out and frustrating for those undergoing it for the first time. Without a clear understanding of exactly what HMRC are looking for, perfectly valid claims can be denied or delayed. Processing R&D Tax Credits is a time-consuming process and long delays can occur if a claim is lacking in clarity or evidence.
Big businesses are able to get help with making claims that SME owners may not be aware of. We’re here to change that, ensuring that even small businesses get the Tax Credits to which they’re entitled.
How we can help
Your ability to access HMRC R&D Tax Credit relief depends on making a strong case that your R&D efforts are geared towards furthering science and technology in your industry. We’re here to help you make a bulletproof claim that gets you the assistance you need in a timely manner with minimal chance of delays. We handle the whole process for you, taking care of all the complex logistics of making a claim. So you can concentrate on doing what you do best. Running your business!
Leveraging years of industry knowledge
A strong claim needs to make a case for raising the bar for scientific or technological innovation within your industry. As such, you need a partner who understands your industry better than anyone. If you operate in the materials handling, recycling, testing and instrumentation space, we have years of experience working with clients just like you!
We’ve helped businesses just like yours to ascertain their entitlement to HMRC R&D Tax Credits and make successful claims.
No win no fee
We’re so confident in our ability to make a successful claim on your behalf, we’ll waive our fees if your claim is rejected by HMRC. This means that you can make a claim risk-free. It’s important to note, we have a 100% success rate and NEVER had an R&D tax credit claim rejected.
Find out more
Want to know more about our services? Need to talk about your entitlement? Please don’t hesitate to get in touch with us today.