Considering the vital role played by the innovative businesses in the UK and understanding the need for advancement in technology, the UK government in the year 2000 decided to provide incentives to the businesses working for the advancement in science and technology. R and D tax credits are an incentive for the UK-based companies which fall under the category of R&D and can reclaim up to 33% of their R&D expenditure from HMRC. It is the way of the UK government to reward innovative business which aims to bring something new to the market or improve some existing service or tool.
Who can claim for R and D tax credits?
Any project which aims to:
- create process, device, tool, or service which incorporates advancement in science and technology
- modify and improve existing service, tool, or process with technological changes
- overcome technical uncertainties by the specialists
- recreate existing products in a fundamentally improved manner is considered as R&D and the company working on the project is eligible to claim for R and D tax credits.
If you have spent money on staff, external contractors, subcontractors, material for the projects, or software license, during the period of 2 financial years, you are eligible to reclaim it via the R and D tax credit scheme.
Even if the project has attempted and worked to achieve advancement in the fields of science and technology but failed it is still eligible to claim 33% of its R&D expenditures.
Who are not eligible to claim R and D tax credits?
- Projects working for humanities are not included in science hence not eligible for R&D tax credit claim.
- Any project created or recreated must aim to reach a large mass of people providing some advancement are most likely to qualify but the claim can not be made against the project which reaches only a few hundred people.
- Projects which have not invested a significant amount of money for innovation are not eligible to reclaim for it.
R and D Tax Credits Schemes:
There are two schemes according to which companies can claim their R and D tax credits:
- Companies having employees less than 500
- Turnover limiting to £100 million
- The balance sheet of less than £86 million
According to this scheme, all profitable and loss-making small and medium-sized companies can claim their R&D tax credits. Profitable SMEs can receive 25% of their qualifying expenditure and the scheme is more generous towards loss-making SME’s, they can claim up to 33% of their qualifying expenditure.
The companies which do not fall in the category of SMEs are considered large companies and they can claim via Research and Development Expenditure Credit (RDEC). It was introduced in the Finance Act 2013. Companies liable to Corporation Tax can claim for tax reduction and those having no liability can claim payable credits. It provides 13% credit for your qualifying cost. Amount invested on staff, external workers, subcontractors, software, and your capital expenditure is considered as a qualifying cost for the claim.
* How to Claim for R and D Tax Credits:
Claiming for R and D tax credits involves a few steps and technicalities so the easier way is to get in contact with an R&D expert but you can also opt to claim it yourself. For that you have to write a technical narrative focusing on 2-3 R&D projects, obviously, you can focus on one project if it is well presented and you are confident that it will be convincing enough for the claim. It also requires financial calculations to enter in CT600 form. You are required to fill “Full Company Tax Return Form CT600” meticulously and file it to HMRC. In the technical narrative, you can explain how your project meets the criteria of the R and D tax credits claim and also provide the calculations to justify your claim. You have to try to convince HMRC that you are eligible for the claim, and once your application gets approved, you will receive your credits within 2-8 weeks.
In case of any misinformation or doubt, HMRC can end up with inquiry involving questions to assess your eligibility, and misfile also lead to a penalty. To avoid such complexities it is an easier and safer option to get in contact with R&D experts who daily deal with such matters that can remove risks of rejection by HMRC or miscalculations at your end.
R and D tax credits can add a lot of value to your business, you can also claim for R&D tax relief. Claiming for R and D tax credits seems a difficult task considering the technicalities involved but you can save your time and reduce the risks involved by contacting R&D specialists like us.
For more information get in contact with us and our R&D expert will not only help you to assess your eligibility but also try to maximize your claim. You can also get step-to-step guidance from our R&D experts.