What are R&D tax credits and does my company qualify?
R&D Tax Credits reward UK companies for carrying out research and development activities by allowing a deduction equal to 230% of the qualifying development expenditure, when calculating profits and losses.
Companies claiming R&D Tax Credits paying Corporation Tax should see a reduction in the amount of tax payable.
If the company is loss making - instead of claiming the enhanced deduction to increase the loss available to carry forwards, some of the loss (up to the value of the R&D claimed) may be surrendered to HMRC in exchange for a 14.5% tax credit. This can be a great help towards cash flow.
Does my company qualify?
R&D Tax Credits are available to businesses in a wide variety of industries;
- Design and engineering
- Start-ups and
- Established companies.
R&D takes place when a project seeks to achieve an advance in overall knowledge or capability in a field of science or technology. Your project may research or develop a new process, product or service or improve on an existing one.
Qualifying costs on which R&D Tax Credits can be claimed include direct and externally provided staff, subcontracted R&D (65%), consumables, software, trials, prototyping and independent research costs.
To qualify for R&D Tax Credits - your company must be;
- incorporated in the UK,
- be liable for UK Corporation Tax
- conduct development work related to your trade
- employ less than 500 staff
- turnover must not exceed €100 million
- balance sheet must be under €86 million.
Large companies can claim a Research and Development Expenditure Credit (RDEC) for working on R&D projects equal to 13% of their qualifying R&D expenditure. It can also be claimed by small and large companies who have been subcontracted to do R&D work by a large company.
How do I claim R&D Tax Credits?
R&D Tax Credits are claimed through your Corporation Tax Return (form CT600).
From 1 April 2021 - the amount of R&D Tax Credit that a company can receive in any one year will be capped at £20,000 plus three times the company’s total PAYE and NIC liability.
There are further cap exemptions.
If your company has been undertaking qualifying R&D and has not yet claimed R&D Tax Credits, you can make a backdated claim within the anniversary of your filing date — generally two years after the end of the accounting period.
HMRC aim to process 95% of R&D Tax Credit claims within 28 days. But in our experience, processing times can range anywhere from 20 and 120 days, the time of the year and the complexity of your claim.
As with most things tax-related, the R&D Tax Credits scheme has an almost endless list of grey areas that we haven’t been able to cover in this blog.
If you’re unsure how aspects of the scheme may apply to you, feel free to contact a member of our Business Services Team on 01223 810100 for a chat.