R&D tax credits are a tax incentive from the U.K government, designed to encourage companies to invest in research and development. The scheme was introduced in 2000 and only Limited Companies qualify for R&D tax relief. This scheme can reduce your tax bill or you can claim payable cash credits as a proportion of your R&D expenditure. Claims must be submitted no later than two years after the end of the year in which the money was spent. Two thirds of the total amount claimed until now has come from companies registered in London, the South East or the East of England.
Different options for R&D relief
There are different types of R&D relief depending on the size of your company and whether the project has been subcontracted to you or not:
Small and medium sized enterprises (SME) R&D Relief
You can claim SME R&D relief if you’re an SME with:
- less than 500 staff
- a turnover of under €100m or a balance sheet total under €86m
SME R&D relief allows companies to:
- deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total 230% deduction
- claim a tax credit if the company is loss making, worth up to 14.5% of the surrenderable loss
Research and Development Expenditure Credit
This replaces the relief previously available under the large company scheme.
Large companies can claim a Research and Development Expenditure Credit (RDEC) for working on R&D projects.
It can also be claimed by SMEs and large companies who’ve been subcontracted to do R&D work by a large company. The RDEC is a tax credit for 12% of your qualifying R&D expenditure.
Are you eligible for R&D tax credits?
You must be able to demonstrate to HMRC that the product or service you’re claiming for is truly innovative and an advance on what’s currently available in the market. According to HMRC, R&D for tax purposes is a project which “seeks to achieve an advance in science or technology”. R&D is still deemed to have taken place whether or not the project goes on to be successful; it’s the attempt that counts.
You should be able to explain how your 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
An often overlooked opportunity which qualifies as an example of ‘using science and technology in a new way’ is in the potential to claim for an investment in developing new I.T systems, so bare remember to bare this in mind if you’re wondering whether or not you’re be eligible.
If these conditions apply to your project, you may be eligible for R&D tax relief. You can claim this relief on day-to-day costs and expenditure, including components such as staff, subcontractors, materials, software and utilities.
If you think you might be eligible for R&D tax relief, contact us at swoopfunding.com and we’ll help you with your claim.