The R&D Tax Credit Scheme
If your business is engaged in qualified research and development (R&D) activities, you may be able to claim R&D relief on your corporation tax return. The rules around qualifying R&D expenditure can be complex, so it’s essential to understand exactly what qualifies for R&D tax relief. This blog post will explain the basics of R&D tax credits and outline the key things you need to know to make a successful claim.
R&D Tax Credits: The Basics
R&D tax credits are a government-sponsored scheme that provides both small and large companies with a tax credit for qualifying R&D projects. The credit can be claimed for tax purposes as a reduction in the amount of corporation tax payable, and it is available to companies of all sizes.
To qualify for R&D tax credits, your business must meet two key elements: first, the activities being carried out must be classified as R&D; and second, the expenditure associated with those activities must be considered “qualifying expenditure”. Let’s take a closer look at each of these criteria.
What Is R&D?
“R&D is the carrying out of a systematic investigation to increase scientific or technical knowledge. It covers all stages of product development, from conception and design to testing and production.”
In other words, for an activity to qualify as R&D, it must involve a genuine attempt to gain new knowledge or understanding about a particular subject. Purely investigative activities (such as market research) do not qualify, nor do routine activities that are carried out in the course of doing business.
In addition to meeting the definition of R&D, the expenditure associated with those activities must also be considered “qualifying expenditure”. This is defined as any expenditure that is directly related to the carrying out of R&D. It can include items such as labour costs, materials, software, and contract research expenses.
The Rules Of What Qualifies For A Successful R&D Tax Credit Claim:
1) The project must be aimed at discovering something new
The first rule of qualifying for an R&D tax credit is that the project must be aimed at discovering something new, which may be in science or technology. This could involve developing a new product, process or software; improving an existing product, or overcoming technological uncertainties. Simply making minor improvements to a current product or process is not qualifying R&D activity.
2) The project must be experimental
The second rule is that the project must be experimental. This means that the work being carried out should not be based on predetermined methods or principles but should instead involve an element of trial and error. To satisfy this rule, you will need to demonstrate that your team was working systematically towards an advance in knowledge and that your R&D spend is truly innovative.
3) The project must be technical
The third rule is that the project must be technical. This means that it must involve applying scientific or technological knowledge to achieve the desired outcome. Presenting an advancement in your sector is key to unlocking grant funding or initiatives to help further the development of your projects.
If your business can meet these requirements, you may be able to claim a credit of up to 230% of your qualifying expenditure. This may be through the SME scheme or RDEC scheme for larger businesses. SME R&D tax credits class for businesses with no more than 500 members of staff with a turnover under €100m. If you are ready to receive your research and development expenditure credit (RDEC) then get in touch today to find out how much you may be eligible to claim.