R&D Tax Credits

The Government need Britain to be at the forefront of innovation because this brings in trade and money into the UK. Businesses do this by either making processes more efficient or by the invention of new products or services. Both of which would increase profitability, employment, and trade should they be successful.

Research and Development (R&D) tax relief is the government’s way of rewarding businesses that invest in innovation. This innovation can be in the form of developing new, or improving existing products, processes, services, devices and materials or advancing the state of knowledge in their sector.

Research and Development (R&D) reliefs support companies that work on innovative projects in science and technology. It can be claimed by a range of companies that seek to research or develop an advance in their field. It can even be claimed on unsuccessful projects.

You may be able to claim Corporation Tax relief if your project meets HMRC’s definition of R&D.

The work that qualifies for R&D relief must be part of a specific project to make an advance in science or technology. It cannot be an advance within a social science, like economics, or a theoretical field, such as pure maths.

The project must relate to your company’s trade, either an existing one, or one that you intend to start up based on the results of the R&D.

To get R&D relief you need to explain how a project:

• looked for an advance in science and technology
• had to overcome uncertainty
• tried to overcome this uncertainty
• could not be easily worked out by a professional in the field

Your project may research or develop a new process, product or service or improve on an existing one.

The work that qualifies for R & D relief must be part of a specific project to make an advance in science or technology. It cannot be an advance within a social science, like economics, or a theoretical field, such as pure maths.

The project must relate to your company’s trade, either an existing one, or one that you intend to start up based on the results of the R&D.

To get R&D relief you need to explain how a project:

• looked for an advance in science and technology
• had to overcome uncertainty
• tried to overcome this uncertainty
• could not be easily worked out by a professional in the field

Your project may research or develop a new process, product or service or improve on an existing one.

Advances in the field

Your project must aim to create an advance in the overall field, not just for your business. This means an advance cannot just be an existing technology that has been used for the first time in your sector.

The process, product or service can still be an advance if it’s been developed by another company but is not publicly known or available.

Show that a professional in the field could not work this out

You should explain why a professional could not easily work out your advance.

You can do this by showing that other attempts to find a solution had failed.

You can also show that the people working on your project are professionals in that field and get them to explain the uncertainties involved.

Show there was uncertainty

A scientific or technological uncertainty exists when an expert on the subject cannot say if something is technologically possible or how it can be done, even after referring to all available evidence.

This means that your company or experts in the field cannot already know about the advance or the way you achieved it.

Explain how you tried to overcome the uncertainty

You should show that the R&D needed research, testing and analysis to develop it.

You need to be able to explain the work you did to overcome the uncertainty. This can be a simple description of the successes and failures you had during the project.

There are different types of R&D relief, depending on the size of your company and if the project has been subcontracted to you or not.

Small and medium sized enterprises (SME) R&D Relief

You can claim SME R & D relief if you are a SME with both of the following:

• less than 500 staff
• a turnover of under 100 million euros or a balance sheet total under 86 million euros

SME R&D relief allows companies to:

• deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total 230% deduction
• claim a tax credit if the company is loss making, worth up to 14.5% of the surrenderable loss

Large companies can claim a Research and Development Expenditure Credit (RDEC) for working on R&D projects.

It can also be claimed by SMEs and large companies who have been subcontracted to do R&D work by a large company.

The Research and Development Expenditure Credit is a tax credit from 1^st April 2020 it is 13% of your qualifying R&D expenditure.

There are tens of thousands of pounds being lost in tax relief by eligible companies every year. This reflects the common misconception that Research and Development (R&D) is confined to manufacturing, tech giants or research laboratories. In reality, businesses are often undertaking R&D in their day-to-day activity, driving innovation and moving the industry forward without realising.