R&D tax allowances - all you need to know

R&D tax allowances - all you need to know

Think Research and Development tax allowances don’t apply to your business? You may well be surprised. Last year more than 39,000 UK companies took advantage of the scheme, claiming nearly £3.5bn in tax relief for projects as diverse as software development, streamlining manufacturing through automation and developing innovative operational processes.

As a local accountant, we’ve helped companies of all sizes claim R&D tax allowances for all types and sizes of project, so if you’re not sure if it’s relevant to you -  read on.

What is R&D tax relief?

R&D tax credits are a government initiative, introduced in 2000, to reward UK companies who invest in innovation. So, if you spend any money on developing new products, processes or services or enhancing existing ones, you may be eligible for R&D tax relief.

What’s the benefit of making a R&D tax credit claim?

If you make an R&D tax credit claim, then you will either receive a Corporation Tax reduction or a cash payment or a mixture of both. This is a great incentive, not only to reduce your tax liability, but also to look at new, innovative ways to grow your business. So, in effect, it’s helping you fund innovation that could transform your business and take it to the next level.

Both profitable and loss making companies can apply, so it’s well worth working out if your company is eligible.

So, what types of projects qualify as R&D activities?

The good news HMRC’s R&D criteria are fairly broad, so anything which sees your company ‘help resolve scientific or technological uncertainties’ may qualify for R&D relief.

Research and Development happens across all sectors, and doesn’t have to be about science or technology, so don’t automatically assume that you don’t do anything that qualifies. Have a think about whether you are:

  • Creating new products, processes or services
  • Changing or modifying an existing product, process or service.

Or carrying out those activities for a client. If you are, then you may be able to claim for R&D tax relief. And bear in mind, your R&D doesn’t have to be successful to qualify.

If you’re still unsure, take a look at this handy guide from HMRC or give us a call. We love helping people take their business to the next level, so are happy to help.

How do I know if my company is eligible? 

To qualify you have to be a limited company, subject to Corporation Tax and spending money on qualifying research and development activities.

There are currently two R&D schemes, catering for both small business and large companies.

The SME scheme

If you have fewer than 500 employees, and a turnover of less than €100m, or a balance sheet of less than €86m, then you can make a R&D claim. However, if you are in receipt of any State Aid, subsidies or grants, it may make a difference to your R&D claim.

If a project does qualify under the SME scheme, then on average you will receive 25% of the cost of the R&D project.

The Research and Development Expenditure Credit (RDEC) scheme

If you don’t meet the criteria for the SME scheme, then you will only be able to claim under the RDEC regime. This scheme is less beneficial and you will only receive in the region of 9.7% of your project costs.

If you’re not sure what scheme you qualify for, please get in touch. As local accountants, we’ve worked with a number of companies to help them claim for R&D tax relief, so will be able to quickly help you out.

What project costs would qualify?

If you are making a R&D claim then the following costs would qualify. 

  • Direct staff costs including salaries, employer’s NIC, pension contributions and reimbursed expenses.
  • Subcontractors
  • Consumable items directly used in the project, which includes, water, fuel and power
  • Software used directly in the R&D
  • Payments to subjects of clinical trials

How to claim for R&D tax relief

When you submit your Company Tax Return form, the total amount you are claiming for is simply included on the form.

As local accountants, we know that claiming for R&D tax relief can be a bit of a hassle, which is why we offer a range of accountancy services, which includes helping with your claim for R&D tax relief.  We will help:

  • identify if you have any qualifying projects
  • work out all the relevant qualifying costs
  • Deal with HMRC on your behalf. 

It normally takes HMRC 4-6 weeks to process a claim. If you have already paid your Corporation Tax bill, you will receive a repayment,  or a R&D tax credit cash refund, if your business made a loss during the accounting period.

Need more advice about R&D tax credit claims? Then, get in touch with your local accountant.

If you would like more advice on how to claim for R&D tax relief, please get in touch. We will ensure that you get all the R&D tax credits you are due,  help you take your business to the next level and most importantly, save you some tax!