R&D tax credit criteria for SMEs

r&d tax credit criteria

When you’re designing, testing, and researching your new products and services, the last thing you need is the taxman breathing down your neck. Innovation can be stifled and even halted when it simply costs too much to do. There are countless examples of businesses allowing their amazing products to falter and fade away because they didn’t have the funds to make them into a reality. Research and development (R&D), is the epicentre of all innovations, breakthroughs, and discoveries for businesses. It’s the single most important department in many respects. So surely there is a way you can set about your r&d operations without having to pay too much? The government r&d tax relief program is something you can use to help you.

Who’s it for and what’s the gist of it?

This r&d tax relief program only applies to small and medium-sized businesses. If you’re a large business with hundreds of employees and a large profit/revenue base, you shouldn’t have a problem funding your projects without any sort of help. 

You can deduct 230% in total. You get 130% extra off your qualifying costs that come from your yearly profits but you also receive the normal 100% deduction. If your company is making a loss, you can also receive a tax credit claim of up to 14.5% of the surrenderable loss. 

In order to be eligible to claim this relief, you must show your projects are meeting the definition of r&d. You should take the time to sign up for Advance Assurance which will give you the benefit of having any r&d claims made, accepted in the first three accounting periods. 

What projects would qualify?

So many companies don’t realise that their projects do qualify for this sort of relief. According to the ONS, in 2016 alone, British businesses spent £33 billion on r&d with over half of that coming from the manufacturing sector. These are some of the project types that would make you eligible for this relief.

  • Feasibility studies: It costs time and money, to see whether you can financially support a project, were it to be given the green light. You’re trying to find out the scalability, timeline, project schedules, and manpower possibilities, etc. 
  • Product testing: This one is pretty simple. You would qualify for the relief program if you can show you have been doing product testing, how much it costs, where, when, what you were trying to find out and how this was for the benefit of your company, etc.
  • Analysis, design, and development: A lot of what you do sitting in the office, costs money. You’re paying salaries and buying software to properly design products. You may also be hiring experts for their advice and knowledge. All of this is still covered in the relief program.

There are lots more projects that qualify, so check before you come to the false conclusion that it wouldn’t apply for you. R&d expenditure development is a broad umbrella that has many projects sheltering under it. With the help of r&d specialists, they will check through all the eligibility criteria to show you what you can make a claim for. 

What costs can you claim for?

So you know you’re eligible but what kinds of costs can you hope to have relieved? 

Employee costs are one of the highest expenditures for any r&d project. You can claim a proportion of their salaries, wages, national insurance contributions (class 1), and pension fund contributions as well. 

Some projects are very complex and channel throughout the entire business. You can also claim for support staff that worked directly on the project as well as admin workers. But what if you used an external agency for workers to provide extra support on your r&d project? For this, you can make a 65% claim on all relevant payments to those particular workers and agency fees. 

Other types of costs you can make a claim for are, for the software, purchased or leased, subcontractor costs, consumable items as well as clinical trials volunteers. 

You must accurately log r&d activities

You should already be logging how your r&d projects are doing, just as good practice. This way you’ll have a clear picture of every little thing when it comes time to conclude the project and write an evaluation report. 

However, the government r&d tax relief program needs to know what went on if you’re going to make claims. 

You will need to have a detailed report concerning the following things.

  • What technical issues did you identify and when did you start trying to resolve them?
  • Did you make sure, there wasn’t already an existing solution to these issues?
  • R&d activity can be considered ended when you have solved the issues at hand or have simply stopped working on them.
  • The project or activity you are making a claim for, will have succeeded if you have a working prototype that solves the issues.
  • The r&d for the same product may reopen if you find another technological and or scientific uncertainty, once you have already begun producing the product.
  • You can claim r&d tax relief even while you are trying to resolve the matter(s). 

How can you make a claim?

You can still make r&d relief claims, by up to 2 years after the end of the accounting period the r&d was done. Begin your claim by entering your enhanced expenditure into the CT600 form (full company tax return).  One of our team can do this for you, saving you time and ensuring the claim is completed correctly and most efficiently.  

From the start of our relationship with your businesses, the whole process will be carefully managed by one of our experienced tax advisors. We have a 100% success rate in claims submitted and we will ensure your business is compliant.

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