In April 2000, the government introduced a scheme that encourages and rewards UK businesses performing innovative and challenging work in their field. The Research and Development (R&D) Tax Credits scheme provides financial relief to companies whose projects qualify, enabling them to offset some of the expenditure required for R&D.
The majority of organisations that could claim, however, don’t – and yours may be one of them. Here’s a brief guide to R&D tax credits and how your UK business can take advantage of them.
Let’s start with the basics. After all, if you don’t know whether your project is eligible, you can’t claim. The government defines a qualifying project as one which, “Seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty.” This uncertainty refers to a particular challenge for which no solution is easily obtainable, or for which others have failed to find a solution in the past.
The project must also relate either to your organisation’s existing trade, or one that you intend to set up once you’ve completed the research. Receipt of some grants, such as the State Aid grant, mean your project is ineligible for R&D tax credits. Your business, however, can still claim for other endeavours that are not State Aid funded.
Showing the project is eligible
When filing your tax return, you’ll need to provide proof of the project’s eligibility. This may include what advancements were sought or what uncertainties existed, and why a solution to the challenge wasn’t deducible by an expert in your sector. You will also need to supply the qualifying expenses and the calculations for the R&D tax relief you are claiming for.
Qualifying revenue expenses include such items as utilities, consumables, employee costs, software and materials. If the research involves clinical trials, the payments made to subjects can also be claimed for.
Some businesses are able to claim for capital expenditure, but it’s advisable to speak to an experienced tax advisor before attempting to do so.
Making a claim
If your work is eligible for R&D tax credits, you need to make a claim under either the SME or RDEC scheme. The former is for businesses of fewer than 500 employees, that also have either a turnover of under £100m or a balance sheet of under £86m. The latter is for businesses that exceed those figures. Businesses claiming under the SME scheme can claim up to 230% of their qualifying expenditure, while those claiming under the RDEC scheme can claim up to 130%.
Claims can be made up to two years following the end of the relevant accounting period, and are made on the CT return. An R&D tax specialist can assist with the particulars of the procedure to ensure you claim the correct recompense.
Once the claim is submitted, the R&D tax relief should be with you within a few weeks.