R&D tax relief is a tax incentive from the UK Government designed to encourage companies to invest in R&D. The scheme has been around since 2000 and last year over 25,000 UK companies claimed almost £2.9bn in tax relief.
SMEs with a turnover less than €100m can claim:
Losses generated can be surrendered in exchange for a tax credit/cash refund at 14.5%. The amount available is the lower of the R&D enhancement and the trading loss post R&D.
The relief allows your company to take an extra 130% deduction of its qualifying costs,
in addition to the normal 100% deduction from the yearly profit. Read more about R&D Calculations.
Large companies with a turnover in excess of €100m,
then you may be eligible to claim Research and Development Expenditure Credit (RDEC).
To receive R&D Tax Relief you need to ensure that you have carried out an R&D project which meets the government definition for tax purposes and have incurred qualifying costs on this project.
HMRC qualify research and development as overcoming technological and scientific uncertainties or challenges; aiming at achieving a technological and scientific advance that couldn’t be easily worked out by a professional in the field.
Whatever size or sector, if your company is taking a risk by attempting to resolve these uncertainties, then you may be carrying out qualifying activity. This could include creating a new process, product or service or improving on an existing one.
To claim R&D relief projects must meet all of the following criteria:
HMRC qualify research and development as overcoming technological and scientific uncertainties or challenges; aiming at achieving a technological and scientific advance that couldn’t be easily worked out by a professional in the field. In our experience, claims are often overlooked because business owners over-estimate the level of innovation required to claim. Contact us for a free assessment.
Routine analysis, copying or adaption of an existing product, process, service or material, as well as attempting to improve the cosmetic or aesthetic qualities of a product, process, service or material will not itself be R&D. However, work to create certain cosmetic or aesthetic effects through the application of technology can still qualify. Other non-qualifying activities include but are not restricted to, commercial or financial steps necessary for innovation, production, distribution, storage and repair.
The R&D claim is based on a just and reasonable assessment of the proportion of costs relating to research and development activities, i.e. time spent by R&D staff on qualifying activities. There is no requirement to record time against R&D projects, however it could prove beneficial in ensuring a robust claim is put forward to HMRC.
The use of sub-
Staff Costs: Cost of directly employing staff who are actively engaged in R&D activity. Includes: class 1 NIC, pension fund contributions, bonuses and (if applicable) payment to subjects involved i.e. for clinical trials.
External Contractors and Freelancers: Cost of paying a staff provider for staff provided to the company, or a sub-contractor who is directly and actively engaged in carrying out R&D activity.
Consumable Items: Consumable or transformable materials used directly in carrying out R&D.
Software: Revenue expenditure incurred on computer software employed directly in R&D.
Utility Costs: Power, water and fuel used directly in carrying out R&D.
You can claim back two financial periods. For example, a business with an accounting year end of May 31st 2018 has until May 30th 2020 to claim or lose out.
You can claim R&D tax credits after each financial period (when you submit a corporation tax return) as long as you are creating a new advancement in science or technology.
Our R&D tax team can prepare your claim within 4 weeks of receiving all the necessary information. Once the claim is submitted, HMRC generally take 4 to 6 weeks to process a claim.
If you are losing money, you can claim back up to 33% of your qualifying development spend in cash. In other words, you can get up to 33p back for every £1 you spend. If you are profit-making, your relief will offset your tax liability up to the amount of tax you owe. A profit making company, startup or SME can even get cash back if its R&D tax credit is greater than your corporation tax liability. In that case, you get the amount you’re owed in R&D tax relief that is greater than your tax liability back in cash. You can get cash back as well if you’ve already paid your corporation tax – often the case when we are filing an amended corporation tax return to cover R&D expenditure for your past financial years.
We work with a large number of external accounts. Our team are happy to liaise directly with your accountants to obtain all the relevant financial documentation. We will prepare a technical report and a claim statement that your accountant can use when submitting your corporation tax return.
Jeffreys Henry LLP provide an end-to-end service that makes claiming R&D tax credits easy for you.
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Jeffreys Henry LLP is an ICAEW registered accountancy firm giving you peace of mind of a robust R&D claim, with 100% success rate and no multiple year contracts.