Some people like to understand what they are getting into.
Others just jump at the chance to get cashback.
Neither way is right or wrong.
Here are some R&D tax credit facts.
Key Information - R&D tax credits
Research and Development (R&D) tax credits are the Government’s way of encouraging innovation by helping to reduce some of the financial risk for companies who undertake research and/or development activities. The developments can be to improve or develop new systems and processes or products and services, to improve your company or to meet customer requirements.
There are two R&D schemes:
- Research and Development Expenditure Credit (RDEC) - this applies to Large Companies. Large Companies are companies with over 500 employees.
- Research and Development Tax Relief which is also often called Research and Development Tax Credit - this applies to SMEs (Small and Medium Enterprises). SME's are companies with under 500 employees.
Large companies get back around 9% of their eligible expenditure on R&D activities.
SME's get back between 18% and 33% of their eligible expenditure on R&D activities.
No UK registered limited company is automatically unable to qualify.
(Sole traders, partnerships, LLPs and registered charities are not eligible for either scheme).
Companies can claim year on year so long as they continue to undertake qualifying activities.
Each case has to be looked at on its own merits to see if qualification criteria have been met.
It is important to put the emphasis on development activities and not research, as putting the emphasis on research leads to companies thinking that they don’t qualify, when in fact they do.
Your development does not have to be successful in order to qualify as failures are an accepted part of R&D activities.
What activities qualify as R&D?
Typically companies that successfully qualify are undertaking development activities to create new or significantly improved processes, materials, devices, products or services. Quite often their development activities will also involve advancing the capabilities of the technologies they use – such as software, hardware, machinery and equipment – all done in order to be more commercially successful in some way.
For your development activities to be R&D:
- you must have invested time, effort, talent and resources in attempting to create a new or significantly improved product, process, service, device or material; and
- your activities must have involved some experimentation or innovation – if you knew exactly what to do from the outset, or could easily find out what to do, with no difficulties encountered, that would be “routine work” not R&D; and
- you must be able to show that the development involved “advancing scientific or technological knowledge or capability” in some respect.
The last point is perhaps the most common reason why companies don’t make a claim, as many people are unsure whether they are making any advance, or are reluctant to say that they have made an advance.
The good news is that you can qualify as having made an advance even if your new or improved product, process, service, device or material has already been attempted or achieved by other companies. In fact you don’t even have to be working at the cutting edge:
“The existence of high-fidelity audio equipment does not prevent a project to create lower performance equipment from being an advance in science or technology” HMRC CIRD81900
On the other hand you would not qualify as undertaking R&D, if information on what to do or how to do it is readily available or easily deducible by a competent professional in the relevant field.
Are you ready to find out if you qualify or how much your R&D claims could be worth?