R&D Tax Credit
Research and development (R&D) tax credit is a Government incentive to promote innovation in companies, enabling growth and positive developments. Apply now with our easy online form!
What is R&D Tax Credit?
Research and development (R&D) tax credit is a Government incentive to promote innovation in companies, enabling growth and positive developments. Through participating in R&D projects, companies can receive rewards from HMRC in the form of cash or tax relief, allowing them to steam ahead, hire new staff, and maintain and upward growth cycle.
The reason R&D is a focus for the UK Government is because it’s a risk-taking exercise. Therefore, companies that are willing to take the leap of faith and invest resources in pushing boundaries in their field should be rewarded for their efforts. With R&D tax relief, this is entirely possible.
Is R&D Tax Credit an Official and Legitimate Scheme?
R&D tax relief is a UK Government scheme that is 100% legitimate. There is a published HMRC guideline which can be viewed on the .GOV website. We are experts in helping businesses claim their R&D tax relief. If you have any doubts, feel free to get in touch with the team.
What are the Benefits of R&D Tax Credit?
The benefits of R&D tax credit impact both companies and the Government. Businesses can continue to innovate and overcome obstacles in their field with little friction, and the Government can boost productivity and facilitate technological advances for the greater good. It’s a win-win situation.
By using research and development tax credit, businesses can invest in innovative projects that promote growth. With the relief offer by the Government, they can continue to re-invest money, creating a positive feedback loop which can propel the business upwards.
If you’re interested in claiming R&D tax relief for one or more of your projects, we can help you achieve it. On average, companies claim £33,500 using this scheme, and that number rises to £50,000 for manufacturing and construction. However, the amount you can get depends on your industry and company size.
Additionally, if this is your first time applying for R&D tax relief, you can typically claim it on the last two accounting periods.
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How Does R&D Tax Credit Work? What’s the Process?
The process to claiming on your R&D project expenses is relatively simple. Here at Aurora, we are here to help you through the process and can answer any questions you might have. Here’s a simplified overview of what will happen when you apply:
- Stage 1: There will be a call with your business to help identify any R&D projects you want to make a claim on.
- Stage 2: We send a proposal document for you to review, sign, and return to us.
- Stage 3: We gather more information about your R&D projects and their associated costs on a second call.
- Stage 4: We then start researching to confirm and validate the claim, insuring it is eligible. This is where admin tasks start to get completed, such as accounts and authorisation letter requests.
- Stage 5: We then calculate the amount you’ll likely receive from the claim and give you your options.
- Stage 6: Your final report is compiled and the final checks are performed to give it the all clear.
- Stage 7: The claim is submitted to HMRC for approval.
- Stage 8: Your claim is processed by HMRC, and you receive your tax credit. This process can take 4-6 weeks.
Again, this isn’t an exhaustive list and there is sometimes more complexity involved. However, this should provide an adequate overview of the claiming process and what you can expect.
It’s also worth noting that once HMRC have approved the claim, what you’ll receive will vary. If you are profitable, you’ll likely receive a corporate tax reduction. If you are loss-making, you’ll likely receive a cash credit. However, in some cases, you can receive a mixture of the two.
Who is Eligible for R&D Tax Relief?
R&D tax credit can be claimed in just about any industry. From candlestick makers to aeronautical engineers, R&D tax relief is open to anyone with a qualifying project.
However, there are specific criteria that need to be met when it comes to the size of the company. SMEs and larger companies are treated differently and are likely to receive different forms of relief. Let’s dive into some of these difference now.
SME R&D Tax Credit
Small and medium-sized companies is where you’ll likely see the most use from R and D tax credit. Additionally, this is where the majority of our expertise is, which means we have intricate knowledge of how these claim play out and can offer in-depth advice when necessary.
To be eligible to claim R&D tax relief for a SME, you need:
- To be a registered UK company and be liable to pay corporation tax
- To have under 500 employees
- To have a turnover under 100million Euros or under 86million Euros on the balance sheet
- To have not received any grants or subsidies towards their R&D projects
- To have not be subcontracted by a larger company to perform the R&D activities
As previously stated, if you are an SME, such as a start-up or a young company, you’ll likely be offered R&D tax credit. Only under specific circumstances will you not be eligible, and you’ll instead have to apply for Research and Development Expenditure Credit (RDEC), which is explained below.
Larger Companies and R&D Tax Credit
If you’re a large company, it’s unlikely you’ll be eligible for R&D tax credit. However, there are still options available. To be qualified as a larger company, you’ll need:
- To have 500 staff or more
- To have over 100million Euros in turnover or 86million Euros on the balance sheet.
If you are considered as a large company, you’ll be eligible instead for RDEC. This scheme involves crediting a company for R&D projects, and the relief comes up as revenue on the profit and loss statement. Therefore, not only are larger companies also encouraged to invest in innovations but so are third party investors, such as VCs and Angels.
Large companies are not the only entities who have access to RDEC – SME can as well. If the SME has received grants or has worked as a subcontractor for a larger company to perform the R&D activities, they may be entitled to RDEC. Bear in mind, however, that the claims on RDEC are usually less than R&D tax credit
How Do You Qualify for R&D Tax Credit?
Even if you are eligible for R&D tax relief, there are still a number of qualifications that need to be satisfied. These are set by HMRC and if you want to be accepted for this relief, you need to make sure you tick all the boxes. Here are the criteria needed to make a successful claim.
You Have to Have a UK Company
Only UK companies are allowed to claim R&D tax credit. Unfortunately, if you have a company based abroad, you won’t qualify. If you are yet to be incorporated and engage in R&D projects on a continuous basis, it may be beneficial to start a limited company.
Advances in Your Field
If you want to claim R&D tax relief, you need to show the advancements of your R&D project was for the wider field, not just your company. This also means the advancements can’t include the use of an existing technology in your sector even if it’s the first time it’s been used.
However, even if the R&D project doesn’t fulfil it’s objective or if the innovations aren’t completely realised, R&D tax credit can still be claimed. You just have to prove you were advancing the technology or processes in your field.
Showing There Was Uncertainty
In order to qualify, you need to show there were scientific or technological uncertainties that a professional in the field couldn’t readily or easily solve. You can show this using other projects which failed to provide a solution. Additionally, you can also have the professionals working on the project to explain the uncertainties involved.
Overcoming the Uncertainty
You must show that you spent money and resources to attempt to solve the uncertainties in your project. This can include the hiring of staff or subcontractors (such as professionals) and the expenses on materials.
Additionally, a simple description of the processes you used and the successes and failures of the projects can be helpful.
What is Considered “Research and Development”?
The Government’s definition for R&D is very broad and covers near enough anything which involves the process of resolving scientific or technological uncertainties. If you believe you are performing projects under this definition, you may be eligible for a claim.
R&D in this sense can include activities such as creating new products, services, or processes. It can also include changing or modifying an existing product, service, or process.
How Much Can a Business Claim from R&D Tax Relief?
How much you can claim from R&D tax credit depends on a number of factors, many of which have been already mentioned. These include company size and the expenditure of the project. However, depending on whether your SME or larger company, you may be entitled to different amounts.
SMEs: With SMEs, most of the time you’ll receive R&D tax credit. This means you’ll be able to claim 33p on every £1 spend on qualifying R&D activities.
Large Companies: Large companies (and some SMEs) will be offered RDEC, which allows companies to claim 11p on every £1 spent on qualifying R&D activities.
As you can see, there are immediate benefits to SMEs who are looking to claim on their R&D projects.
If you’re looking for an experienced broker to walk you through your options when it comes to R&D tax relief, Aurora should be your first option. With years of expertise, we’ll support you 100% of the way. Get in touch now to learn more about how we can help.
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