Innovation. It is the engine that drives the evolution and ongoing success of your enterprise. It’s what places you at the forefront of our technological landscape- enriching and diversifying our national economy.
Innovation is driven by research and development, as enterprises keep testing the boundaries of what’s possible in their respective fields. However, finding the time and the capital to commit to R&D isn’t always easy. Especially when your time and resources are limited and your margins can never be taken for granted.
Fortunately, there is government support available for innovative businesses who want to make a greater investment in their R&D activities. These come in the form of R&D tax credits.. The great tragedy, however, is that many businesses have no idea what they are entitled to. Or even that this form of government support exists.
Here we’ll take a close look at what exactly R&D Tax Credits are, what businesses and activities qualify for them, and how we can simplify the process of making an application for them…
What are R&D Tax Credits?
R&D Tax Credits are a form of tax relief from the government administrated through HMRC. They were implemented in 2000 to encourage Small to Medium-sized businesses to invest in more R&D spending, thereby driving innovation in the private sector. A couple of years later in 2002 they were also extended to larger businesses while a “top-up” relief was implemented for vaccine research in 2003. When more businesses invest in innovation, the whole country benefits. Thus, any business across any industry is able to apply for them.
They work by either by reducing a company’s corporation tax liability to or making a payment directly to the applying company. Within the umbrella of R&D Tax Credits there are three schemes for claiming relief:
- The Small to Medium-sized Enterprise (SME) Scheme
- The Large Company Scheme
- Research & Development Expenditure Credits (RDEC) available to both large and small businesses.
Does my business qualify for R&D Tax Credits?
Any business is able to apply for tax relief, regardless of its size or industry. If you wish to apply under the SME scheme, your business must meet HMRC’s criteria for a Small to Medium Sized Enterprise. That is to say you must have fewer than 500 employees and your annual turnover must be less than £100 million.
It’s also worth noting that you can still apply for R&D Tax Credits in your early days, even if you have yet to earn a taxable profit. An SME which has no tax bill to reduce can claim a cash payment.
Qualifying projects and expenditure
As of April 2015, businesses can claim up to 230% of qualifying Research and Development expenditure under the scheme. The difficulty, however, comes from the fact that the R&D process might look slightly different for every business and every industry.
As such, businesses may be unclear as to what projects or expenditures qualify for relief in the form of Tax Credits. HMRC have a useful PDF file which outlines projects and expenditures which qualify for relief under the scheme. You can check it out here.
Here are some of the guidelines for projects in brief;
- Project spending must advance the science or technology of your business
- Projects must seek to advance knowledge or capability in the field of science and technology
- Research projects must involve a degree of “uncertainty” which cannot be resolved by a competent professional
- Cannot include innovation of social sciences (including economics)
- Commercial innovation is not counted
It’s also worth noting, however, that HMRC is flexible in its definitions, and companies often hold meetings with HMRC representatives to explain why their project counts as R&D.
The following R&D expenses can be claimed for under the scheme;
- Staffing costs (whether in-house or outsourced) not including support / admin staff
- Clinical trial volunteers
- Up to 65% of subcontracted R&D costs
- Consumable items
- Cost of developing / building prototypes
Capital assets like plant and production equipment are not included although these may be claimed for under a separate scheme.
Relief claim statistics
In order to better understand the scheme and what kind of businesses are applying for it, you may wish to look at some statistics which demonstrate what kind of industries R&D Tax Credits are often used for and how much is claimed. All of the information above is taken from this document from HMRC which covers applications up to the end of the 2018-2019 tax year. The document provides much greater detail, but here’s a quick overview;
- 48,635 claims were made for the 2017-2018 tax year at the time of publication
- The majority of claims year-on-year are made by SMEs but larger businesses tend to claim more money
- Over £2,200 million was claimed by SMEs for the 2017-2018 tax year
- The average claim made by SMEs for the 2016-2017 tax year was £53,876
- Most of the claims were made by companies based in London and the South East
- Industries making the most claims included Manufacturing, Information & Communication and Professional, Scientific & Technical
- 9,000 claims were made against costs of £5,000 or less
How we can help
In order to get R&D Tax Credit relief from HMRC you need to make a strong case that your R&D efforts are geared towards furthering science and technology in your industry. And that’s not always easy to prove. We can help you to build a case for your business and increase your chances of a successful claim. We handle the whole process for you, so you can concentrate on doing what you do best.
In-depth knowledge of your sector
If you work in the materials handling, recycling, testing and instrumentation arenas, we have worked with clients just like you! We’ve helped them to ascertain their entitlement to R&D Tax Credits and make successful claims which protect their profitability. Our in-depth knowledge allows us to make a compelling case to HMRC on your behalf.
No win no fee
If your claim is rejected by HMRC we won’t charge you a penny, meaning that you have absolutely nothing to lose. There’s an opportunity for great reward at no risk. It’s important to remember we have a 100% record in dealing with HMRC R&D claims. The claim process is dealt for you by a single point of contact who will work with you to check all qualifying r&d expenditure.
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.