What are R&D tax credits?
R&D tax credits are a valuable government tax incentive created to reward companies who invest in research and development activities. Their goal is to reward past and encourage future R&D spending, benefiting industry and the UK economy. R&D tax credits can reward profitable companies with a generous corporation tax deduction or provide loss making companies with a sizeable cash payment.
They are available to any company in any sector.
Do I qualify for R&D tax credits?
More companies qualify for the relief than you may first think. You do not need to be in bright white lab coats undertaking cutting edge research to make a claim. This is the biggest misconception surrounding R&D tax credits.
You simply need to demonstrate that your company has taken a risk by showing that you were faced with challenges that required additional efforts to overcome.
You can make a claim if your company has tried to achieve any of the following:
Creating new products, processes, software, services or devices.
Making appreciable improvements to existing products, processes, software, services or devices.
Duplicating an existing product, process, software, service or device. For example, trying to reproduce a competitors breakthrough.
Think of an R&D project as a journey. If at the start you were faced with challenges where solutions were not readily deducible by your technical team, and there was no publically available information which could be directly used, the work you undertake trying to find solutions to these challenges could qualify for research and development tax credits.
The project doesn’t even need to be successful. If you could not find a solution to these challenges and the project failed you can still make a claim.
What costs can I include in my R&D tax credit claim?
The expenses your company incurs in trying to overcome these scientific or technical challenges can form the basis of an R&D tax credit claim.
The following cost categories may be included:
Expenditure on staff including gross salaries, employers NIC and employers pension contributions.
Expenditure on subcontracted R&D activities.
Expenditure on agency workers.
Expenditure on consumables and materials (including light, heat and water).
How much is my R&D tax credit claim worth?
SMEs can claim up to 33p for every £1 spent on qualifying R&D activities. According to the latest Research and Development (R&D) Tax Credits Statistics Report (2018-2019), the average SME claim stands at £57,000.
Large companies can claim up to 11p for every £1 spent on qualifying R&D activities. According to the latest Research and Development (R&D) Tax Credits Statistics Report (2018-2019), the average large company claim stands at £332,000.
Average value of an SME claim
Average value of a Large Company claim
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