R&D Tax Credits
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Delivering maximum value to your business
With tax credits allowing businesses to claim up to 33% of their research and development (R&D) costs, there’s no better way to advance your company in ways that you may have never thought possible.
We have helped a wide range of clients from varying sectors to claim thousands of pounds in tax relief or cash credits for their investment in new technology and developing new innovative products and services.
R&D Tax Credits – Your Questions Answered
What Are R&D Tax Credits?
Research and development (R&D) tax credits are a government incentive designed to motivate companies to invest in innovation. They are a key source of cash for businesses to invest in innovation, which can involve hiring new staff, buying technology and ultimately, taking their company, and industry, to the next level.
How Much Could I Reclaim?
Tax credits let you reclaim up to 33% of your R&D costs, even if your project fails, or goes in another direction.
SME’s, regardless of whether they’re profitable or operating at a loss, can get back up to 33% of their R&D costs. Large companies qualify for the RDEC (Research and Development Expenditure Credit) regime and can receive up to 10% of their costs.
This credit can be offset against your Corporation Tax, or surrendered for a cash credit if loss making, after the end of your financial year.
What Costs Qualify For R&D Tax Credits?
- Staff costs, including salaries, employer’s NIC, pension contributions and reimbursed expenses.
- Subcontractor and freelancer expenses.
- Materials and consumables, including heat, light and power that are used during your R&D processes.
- Software usage and associated costs.
- Clinical trial costs, including payments to participants for taking part.
Is My Business Eligible For R&D Tax Credits?
R&D can occur in every sector, and therefore any business, regardless of size or sector can benefit from R&D tax credits. If your company is developing new processes, products and services or modifying existing ones, then this could count as R&D, and you could be eligible for tax credits because of it.
Your Business Must Also:
- Be a limited company in the UK that is subject to Corporation Tax.
- Have conducted qualifying research and development activities.
- Have already spent money on these projects.
How Do I Claim R&D Tax Credits For My Business?
You will need to:
- Create a compelling technical narrative.
- Collate a clear table for key financial calculations.
- Include the expenditure on your CT600, and file this with HMRC.
Your narrative needs to show how you are:
- Seeking an advance in science and technology.
- Trying to overcome uncertainties.
- How these activities could not be easily worked out by a professional in the field.
Why Use Williamson & Croft To Complete Your R&D Claim?
Although you can undertake your own R&D Claim, it can cause problems if the CT600 is filled out incorrectly and/or the level of supporting documentation is not up to the required standards. This could result in an HMRC enquiry or a processing delay that stalls your R&D claim.
Due to our extensive experience within the field we ensure that our R&D experts deliver maximum value to your business. We achieve this by utilising your existing record-keeping systems to capture all qualifying expenditure and to provide a robust report with enough technical narrative to satisfy HMRC should they launch an enquiry.
How Do R&D Tax Credits Work?
If you’re spending money on new and creative products, processes or services or you’re looking to improve existing ones, then you may be entitled to R&D Tax Credits. If you’re spending money on your innovation, you can make an R&D claim which you can choose to take as a cash payment or Corporation Tax reduction. The scope of R&D Tax Credits is huge meaning almost any business can apply for them.
Who Qualifies For R&D Tax Credits?
What Counts As Research & Development?
There are two main areas that qualify as R&D, which are:
- Creating new products, processes or services.
- Changing or modifying an existing product, process or service.
Within the government’s definition, your R&D work doesn’t have to be successful to qualify, and you can also include work undertaken on behalf of clients and within other projects.
The key activity is resolving the scientific or technological uncertainties, this might be in a number of ways for example iterative development, prototyping, proofs of concept, or experimentation and testing.. The boundary of the R&D costs you can claim are those that relate to resolving the scientific or technological uncertainties you face. These differ in nature from the commercial project and the entire development project which might include routine work and elements not related to R&D.
How Much Is An R&D Tax Credit Worth?
To calculate how much you’ll get you need to identify qualifying expenditure and enhance that by the relevant rate. Doing this produces your enhanced expenditure.
When you deduct your enhanced expenditure from your taxable profits or add it to your loss, you’ll receive:
- A corporation tax reduction if you’re profit-making.
- A cash credit if you are loss-making.
- A combination of the two.
What Costs Can Be Included In R&D Qualifying Expenditure?
HMRC will allow you to claim Research and Developments tax credits on certain costs that relate to your project.
These costs are:
- Staff costs – This includes gross salaries, employers NIC and pension costs
- Externally Provided Workers – Costs for staff members that are brought in through an external agency will only be subject to 65% of the amount paid to the agency.
- Subcontractors – Under the SME scheme you can claim 65% of any subcontractor costs such (e.g external software developers).
- Consumables – This includes anything consumed during the R&D period such as heating, lighting, electric and water.
- Software – The software must be used or developed specifically for the R&D project in order to get full relief, however if part used then the relief will be apportioned appropriately.
What Kind Of Costs Do Not Qualify For R&D Tax Credits?
When looking into if your development qualifies for R&D purposes you need to ensure you are not copying any existing products, processes, materials, devices or services, as this will not qualify. The costs that may be related but do not apply are as follows:
- Capital expenditure
- Patents and trademarks
- Rent or rates
- Production and distribution of goods and services
How Is The R&D Tax Credit Calculated?
The calculation for the SME scheme is based on if your business is profit making or loss making, see below example based on £150,000 was spent on R&D activities.
£150,000 x 130% (enhanced rate) = £195,000
£195,000 x 19% (corporation tax rate) = £37,050
Claim value: £37,050 (25%)
£150,000 x 130% (enhanced rate) = £195,000
£150,000 + £195,000 = £345,000 (enhanced expenditure)
£345,000 x 14.5% (surrender rate) = £50,025
Claim value: £50,025 (33%)
Where Does R&D Start And Finish?
R&D officially begins when a project seeks to advance science or technology and officially ends when the uncertain elements of the product or service are overcome.
What Does Not Qualify As R&D Tax Credits?
Copying of usual products and services won’t qualify. Neither will the cosmetic improvement of a product or service if there has been a fundamental change or attempt to change, the product, process or service already.
How Long Does It Take To Receive R&D Tax Credits?
The sooner you file the claim the sooner you’ll receive the tax credit. A typical SME claim usually takes 28 days, however, there are factors like complexity and accounts that could lengthen that time.
How Far Back Can You Claim R&D Tax Credits?
You can claim R&D Tax Credits as far back as two years from your current financial year-end. This allows companies to claim on previous projects as opposed to missing out.
Will Brexit Affect R&D Tax Claims?
It’s uncertain as of yet but some suspect R&D tax credits will become more prominent due to British companies not having that European connection. Brexit may force companies to focus inwardly to innovation therefore its thought that the UK government may reward them for this change.
What Is VGTR?
VGTR stands for Video Game Tax Relief. If you qualify you can reclaim up to 20% of your production costs and is designed to help support the British gaming industry.
What Are HMRC’s Rules For Processing R&D Tax Credit Claims?
When HMRC receive R&D tax relief claims they review them all. They begin an enquiry into any claim and raise a query if it is necessary to do so.
Can Charities Or Sole Traders Claim For R&D Tax Relief?
No – only companies liable for Corporation Tax can.
Why Choose Williamson & Croft For Your R&D Claim
- We are an award-winning firm of accountants and tax advisors offering the full range of services to clients within the UK and beyond it. This is highlighted by our 5* reviews, and the fact that we come highly recommended by so many of our clients.
- We don’t believe in a ‘one size fits all’ approach. We offer strategic advice based upon market conditions, cash flow and the goals you hope, and will, achieve.
- We have clients from a wide range of sectors who consider us experts when it comes to understanding, and delivering on, their specific needs.
- We are easily found in Manchester and Liverpool and it would be great to arrange a meeting to discuss your business and for you to meet the team who will be assisting you.
There is a lot of technical jargon and language when it comes to R&D Tax Credits and at Williamson & Croft, we want to make sure that our service is as clear as possible. After all, the R&D Tax Credit Service is complicated enough.
So, with that in mind, we’ve put together a handy glossary section for you to reference whenever you’re feeling a bit confused by technical jargon.
These are original investigations that aim to acquire knowledge in order to achieve a new aim or objective.
Physical or theoretical work in order to gain new knowledge.
Taking a new product or process from the inception stage to commercial deployment.
A presentation that shows how the product or process could be brought to market.
This is when a product or process can be launched on the market for profit.
This refers to emerging market needs that would help a company create a new innovative product.
An activity that shows how a product works and how viable it is.
Where the product or process is deployed for commercial and practical purposes.
A period of time where the product, service or process is undertaken with the aim to bring about a new process or to substantially improve one that already exists.
The early application of a product or service.
This is the process of R&D with the aim of solving a specific problem that arose as a result of a product being deployed or demonstrated.
This is when a product or process has established itself in a new market and has subsequently increased its market share.
An improvement in an aspect of a product or process without any substantial difference in the final service provision.
Taking a current product or process and improving on an aspect of it. The definition of innovation is when it’s been used within a production process or brought to market.
A new idea that can be completed, an invention, to be patented, must have a utility, be non-obvious and have a novelty element.
An activity designed to create a new market or enhance an existing one while also commercialising technology in other markets.
These are created with the intention of obtaining experience and gaining new data.
A new model that is built to include all the qualities of a new process or product.
A popular method of achieving the finances that businesses need to carry out R&D and other forms of innovation.
Processes are undertaken in order to increase the knowledge of the person, the culture or the wider society.
Research & Development
Work that is usually creative in nature and which is done to gain knowledge that will be of benefit to a company and usually to the wider community. The knowledge is then applied in the creation of products, services or processes.
This is done to show how a currently incomplete version of the product or process would work. Its purpose is to showcase possible future uses.
Video Games Tax Relief
A valuable tax incentive offered by the UK Government. It allows video game studios to claim a tax rebate or cash repayment after investing money in the development of a video game.
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