Do you invest time and resources in developing or significantly improving your products, processes or services, either to sell to customers or to increase your company’s productivity?
If you answered yes, you could qualify for one of the Research & Development (R&D) tax credit schemes.
The R&D tax credit schemes are government initiatives that apply to UK Limited Companies - they give you back some of your development expenditure. The idea behind them is to encourage more expenditure on research and development activities because this is proven to have a positive impact on the UK’s economy. To qualify your developments must involve applying science or using technology (software, hardware, machinery or equipment) as an integral part of your development projects.
To work out whether you qualify ask yourself the following questions:
- Do I develop new or improved products, processes, materials, devices or services?
- Do I employ technical staff or technical subcontractors on my development activities?
- Is there some uncertainty in how to achieve the development outcomes I’m seeking?
If you can answer yes to the above three questions you probably qualify for R&D tax credits or tax relief.
How do the R&D schemes work?
The R&D schemes work by reducing the amount of corporation tax payable by your company, or if you made a trading loss a cash payment is available. In both cases the amount that can be claimed is based on your qualifying R&D expenditure in the relevant accounting year.
The big challenge for companies and their tax accountants is in understanding what qualifies as R&D and how to cost their research and development activities.
For companies with under 500 employees qualifying costs include:
- Internal labour/staffing costs (often the largest cost).
- A proportion (65%) of subcontractor costs for contractors based anywhere in the world.
- A portion of energy, consumables and wasted materials used up as part of your development activities.
How much can I get?
The average benefit to UK small or medium enterprises (SMEs) with under 500 employee is around £50,000 per year and you can claim every year you meet qualifiying criteria. You can also go back two acccounting years, which can mean you get an unexpected windfall when making your first R&D claims.
The SME claim rates applicable for R&D expenditure from 1st April 2015 are as follows:
- For every £10,000 spent on development activities you can reduce your corporation tax bill by £2,600 if your company had a taxable profit (based on 20% corporation tax - 19% from 1.4.17 ).
- For every £10,000 spent on development activities you can opt to claim a cash payment of up to £3,335 if your company had a trading loss.
How do I check my eligibility for R&D tax credits?
Actually it’s very easy…. most R&D tax credit specialists don’t make any charge for an initial assessment – and it can be done in as little as 10 minutes over the phone. All you have to do is call one!
We recommend you talk to one of our specialists to check out whether your company may qualify for R&D tax credits. Email us on firstname.lastname@example.org or call 0333 444 8522 to arrange a telephone call.
Page Updated 31.1.19
More information on R&D Tax Credits
- Do I Qualify? Research and Development Tax Credits – Easy Self-Assessment
- My business is driven by technology – can I claim R&D Tax Credits?
- Audio Podcast: Why do companies fail to claim their full R&D tax credit entitlements?
- UK Companies Are Missing Out on Claiming R&D Tax Credits – Are You One of Them? - with video
- Case Study - Claiming R&D Tax Credits? – Why Accountants Might Benefit from Bringing in an Expert
- Help with R&D Claims – Should You Use Your Accountant or a Specialist?
- R&D tax credits: Small Business Takes a Larger Slice
- RandD Tax Credits – Massive Boost for SMEs in UK Budget 2014
- What does Brexit mean for the future of R&D Tax Credits?