Research & Development (R&D)
Research and Development (R&D) tax credits are a tax relief paid by HMRC to UK companies to reward their efforts towards innovation. Companies that spend money on Research & Development are eligible to claim an enhanced deduction against profits of up to £2.30* for every £1 they spend.
Who is eligible?
Any UK company, even if loss making.
There are different types of Research & Development tax credits depending on the size of the business, but those that we work with tend to fall into the SME sector, defined as follows:
- less than 500 staff
- turnover of under €100m or a balance sheet total under €86m.
What qualifies as ‘Research & Development’?
The strict definition is activity to ‘resolve scientific or technological uncertainties’ which is extremely vague, and would suggest that you need to be in one of these industries to qualify, but the reality is different!
It is well worth considering a Research & Development claim if you are:
- Creating new products, processes or services
- Changing or modifying existing products, processes or services to improve them.
This is particularly relevant if your work required research, testing and analysis. Remember too that not all Research & Development projects need to be successful for their costs to qualify for a claim!
The primary consideration is that your project must be specifically to make an advance over existing options. Any claim needs to explain how a project:
- looked for an advance in science and technology
- had to overcome uncertainty
- tried to overcome this uncertainty
- couldn’t be easily worked out by a professional in the field.
What costs can I claim against?
There are a range of costs that are eligible, and the calculation has to be done carefully to ensure any claim is robust, but the headline areas are as follows:
- Staff costs (Salaries, Employers National Insurance contributions, Employers pension contributions, some reimbursed expenses)
- A proportion of Sub-Contracted Costs
- Consumables (Fuel, Water, Materials)
- Some software costs
It’s worth mentioning that costs can only be included up to the completion of the development of the new product or service. Marketing and other costs beyond the completion of the development are not allowable.
This is an area that is changing. The Government want to ensure that these significant amounts are only supporting UK based innovation so it’s important to keep up to date as the landscape continues to shift over time. If you’re considering your first claim, make sure that you check with your advisor before you do, to ensure that your claim is as robust as possible. If you’d like to chat things through with us, please get in touch!
What do you need to prove for an R&D Claim?
The strict definition of qualifying Research & Development is activity to ‘resolve scientific or technological uncertainties’ but it also needs to be a project that makes an advance over existing options.
So how do you prove the activity should qualify?
HMRC’s R&D stance changes
Research and Development (R&D) tax credits are a tax relief paid to reward innovation. Investment in innovation is critical to the UK’s economic recovery, and for many small businesses, R&D tax relief is vital. HMRC’s R&D stance has recently changed though, which could cause problems for our most innovative companies.
Tax rates 2023/24
We’ve listed below the latest tax rates and allowances as announced in the 2023 Spring Budget, or before.
Additional Information Required for R&D Claims
Following our earlier post around R&D, the latest Finance Act includes two changes that will affect all R&D claims…
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