R&D tax credits explained

11th December 2018

Research and development (R&D) tax credits are a valuable government tax relief that rewards UK companies for investing in innovation.

  • Companies that spend money developing new products, processes or services; or enhancing existing ones, are eligible for a cash payment and/or Corporation Tax reduction.
  • R&D tax credit rates are the equivalent of up to 33p for every £1 of qualifying expenditure.
  • They can be used as an alternative to innovation grants for research and development funding. Sometimes they can complement them too.

If eligible, you can typically claim R&D tax relief for your last two completed accounting periods. In other words, while in your 2018 accounting period, you can consider your R&D tax credit 2017 and your R&D tax credit 2016.

They are calculated based on your R&D spend. Qualifying expenditure is identified and enhanced by the relevant rate to produce your ‘enhanced expenditure’. When deducted from your taxable profits, or added to your loss, this will give you a Corporation Tax reduction if you were profitable, a cash credit if you were loss-making, or a combination of the two.

 

What counts as R&D?

For tax purposes, HMRC R&D requirements are purposefully broad. Activities could include:

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

This means that if you’re not sure your project is scientifically or technologically possible, or you don’t know how to achieve it in practice, you could be resolving uncertainties and therefore qualify for R&D tax credits.

Within the accepted HMRC research and development definition, R&D doesn’t have to have been successful to qualify. You can also include work undertaken for a client as well as your own projects.

 

What R&D costs can I claim for?

When putting together an R&D tax credit claim, we look for the following types of qualifying R&D expenditure:

  • Expenditure on staff including salaries, employer’s NIC and pension contributions.
  • Expenditure on subcontractors and freelancers.
  • Expenditure on materials and consumables including heat, light and power that are used up or transformed by the R&D process.
  • Expenditure on some types of software.

Speak to one of our specialist tax experts for advice on your specific circumstances. Our team have experience from across many industries and have the knowledge to support you in discovering if you are eligible and in making your claim.  Contact us: https://staging.whitingandpartners.co.uk/about-us/contact-us/



 
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