R&D Tax Credits
Research and Development and the potential for a claim.
Research and Development is specialised in its nature and not a service all accountants can offer, therefore many businesses don’t realise that they qualify for R&D Tax Credits or that they are not claiming their full entitlement. R&D Tax Credits enable businesses that incur costs in developing products, processes, software or services to receive a corporation tax deduction or cash payment from HMRC. It can even be claimed on unsuccessful projects.
R&D for the purpose of tax relief is designed to support companies that work on innovative projects in science and technology. It can be claimed by companies that seek to research or develop an advance in their field.
R&D tax credit rates range from 25p up to 33p for every £1 of qualifying expenditure, depending on if the company profit making or loss making.
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
- couldn’t 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 project must constitute an advance in the overall knowledge or capability in a field of science or technology, not a company’s own state of knowledge or capability alone. Overall knowledge or capability in a field of science or technology means the knowledge or capability in the field that is publicly available, or is readily deducible from the publicly available knowledge or capability by a competent professional working in the field. Work that seeks an advance relative to this overall knowledge or capability is R&D.
Activities within the Scope
As a way of identifying the qualifying activities for R&D tax purposes consider the following questions about the scope of work:
- Does your Company undertake the physical, scientific or technological development of new products or processes, or aim to duplicate existing products or processes in an appreciably improved way?
- Has the Company made appreciable headway or improvements and overcome technological uncertainties in its field of work (i.e. would you be able to explain what you have developed and why certain parts of it were difficult)?
- Does the Company either employ, or sub-contract, technical staff, engineers, software developers, or scientists?
- Would the Company view at least part of its development work to be not readily deducible by a competent professional in that particular field and / or was there a reasonable degree of trial and error in reaching the final goal?
If you can answer yes to the above then the following areas may be the basis of a claim
- Seeking to develop a new product or service that would result in a technological advancement on what's already out there.
- The company is competent in the field but not entirely sure how you are going to achieve your objective from a technical perspective i.e. there is technical uncertainty.
- A financial risk exists by having staff work on this technical project; or you have used subcontractors to help solve it and/or you have spent on parts and materials (plus energy costs).
Eligible costs must fall into the following categories:
- Staff Costs – This means the cost of employing staff directly who are actively engaged in carrying out R&D itself.
- Externally provided workers and sub-contractors – This covers the cost of paying a staff provider for staff provided to the company, or sub-contractors who are directly and actively engaged in carrying out R&D.
- Consumable Items – These include consumable or transformable materials used directly in carrying out R&D. Where the R&D activity results in goods or services sold in the normal course of a company’s business, the cost of consumable items reflected in those goods or services will not attract tax relief. In other words, relief will only be available on the cost of those items fully used up or expended by the R&D activity itself and which do not go on to be sold as part of a commercial product.
- Software – Revenue expenditure incurred on computer software employed directly in R&D.
- Utility Costs – Power, water, fuel used directly in carrying out R&D, but not for instance telecommunication costs and data costs.
The claim can go back two years, and any claim for the current year should be included in the yet to be completed tax return.
Working with Kingston Burrowes to make a claim
We have expert knowledge and experience in making R&D claims and can therefore help you assess if you qualify to make a claim and advise you how to process that claim to maximise your return.
- We can handle your R&D claim from start to finish, dealing directly with HMRC on your behalf
- Maximise your R&D claim by identifying all qualifying projects and eligible expenses.
- Produce a technical report describing how your project meets the criteria to support your claim.
- Get in touch if you think you might have a claim for a free no-obligation consultation.