The research and development tax credit isn’t a novel or unique idea: 29 out of the 35 OECD countries offer R&D credits.

R&D isn’t just good for the economy. Businesses find these tax credits are valuable to them not only in money saved but in attracting investors and improving value. Tax credits can also be passed onto new owners and enhance the value of your business if you decide to sell.

The UK also offers tax credits in this vein. HMRC’s tax credits directly benefit SMEs whose R&D activities lead them to losses. Rather than receive tax penalties for losses, HMRC offers significant write-offs for qualifying expenses.

Does your business invest in research and development, and can you benefit from these tax breaks to take your company further? Keep reading to learn more about the nature of R&D tax relief in the UK.

 

Team meeting

R&D Relief: What's Available?

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
    • You may need to include linked companies and partnerships when you work out if you’re an SME.
  • 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 have been subcontracted to do R&D work by a large company. The RDEC is a tax credit for 11% of your qualifying R&D expenditure u to 31st December 2017 and 12% from 1st January 2018.

Do You Qualify for an R&D Tax Credit?

R&D credits are not limited to industry, revenue, or size. Instead, your business must pass four tests to prove its eligibility.

To receive R&D relief from the UK government, your company must show how your qualifying project:

  • Desired to find an advance in the hard sciences or technologies
  • Overcame uncertainties (however it is not a requirement)
  • Attempted to overcome the uncertainty. It isn’t a requirement for the project to overcome the uncertainties. Often, if the uncertainties couldn’t be overcome, this is due to the techincal or scientific unknowns
  • Worked out an uncertainty that was new and wasn’t available from an existing solution as is
  • Projects worthy of these tax credits may create a new process or product or alternatively improve an existing version.

Keep in mind that your advance in science or technology requires specificity and can’t fall within theoretical fields (i.e. pure maths) or social sciences (i.e. economics).

 

Hands, pens and paper

Here’s how you might pass these four tests:

  • A Desire to Find an Advance in the Field

    Your advance must prevent a step forward for the entire field or industry – it can’t benefit your business alone.

    Advances still count if they were previously developed but never released or announced to the public.

  • Identify Uncertainty

    Uncertainty means working with variables that complicate your project because they’re unknown or not yet feasible with the current technology.

    The uncertainty must be total: a team of experts shouldn’t be able to re-fit an existing technology to a new problem. It requires a solution people don’t necessarily know about yet.

  • Attempt to Overcome Uncertainty

    Demonstrate the scientific processes used in the research and development processes to overcome the uncertainty.

    If you want a tax credit, you must show your work and provide descriptions of both the successes and failures you encountered during your work.

  • Show That You Need a New Solution

    Prepare to show why professionals weren’t able to help you along by outlining previous failed attempts at finding a solution.

What Kind of Activities Qualify Me for a Tax Credit?

In most cases, companies who qualify for tax credits don’t need to change their current operations to receive them. If you actively engage in one of the following activities, you’re likely to qualify already.

Regularly qualifying practices include:

  • Spending on consumables and materials used in the process
  • Developing new patents
  • Creating new products
  • The bulk of these tax credits are claimed by the manufacturing industry across computer, chemical, appliance, and machinery manufacturing.

Other common industries include information, professional, technical, and scientific services, finance and insurance, and wholesale and retail trade.

computer
Still unsure whether you qualify? Get in touch with one of our expert team who can help!

How to Claim Your Tax Credits

Don’t neglect your R&D tax credits, they provide serious financial relief, especially if you’re currently making losses. For example, a loss-making company spending £250,000 per year on qualifying R&D expenses could receive a £83,375 tax credit.

Credits can be claimed in the two most recent accounting periods or up to 2 years after the end of an accounting period. To ensure you get the maximum credit amount, you’ll need to start preparing now.

Keep extensive records of potential projects, processes, and products likely to qualify for the credits. Be sure to include all documentation and expenses to explain the costs.

To make things easier, keep projects organized and put all supporting documentation in a single place. Do your best to isolate the expenses you might claim in a way that makes sense for your current operations.

Pile of paper
  • P

    Penny Price Aromatherapy Ltd

    I was put in touch with Simon by my Accountant and was absolutely thrilled to save such a large amount from my tax bill. The whole experience was professional, with personal contact, and extremely easy to go through. I would recommend Capital Allowance Review Service to anyone who does R&D as part of their business.   Continue reading

    Penny Price

    Managing Director

  • N

    FDT GB Limited

    I was amazed by the swift and efficient service from Capital Allowance Review Service. Everything was very straightforward and took little of my time.  

    Nick Dobson

    Director

  • R

    Strathendrick Biogas Limited

    I’m really pleased that Capital Allowance Review Service was recommended to me for my R&D Tax Credit claims. The way they applied their expertise to my business was superb. The individuals working on my case were very impressive technically and their process didn’t disrupt my daily activity. The result they... Continue reading

    Robert Kennedy

    Director

  • J

    Apex Displays Ltd

    We were really pleased with the results that the CARS team have achieved for us over the years and continue to do so. Claiming back this amount of tax relief has given us the opportunity to use the money to grow our business even further. This scheme that the government has provided is a great asset to those carrying out... Continue reading

    Jarome Warrilow

    Managing Director

Case studies

Find out how to maximize your tax credits

Sign up to our Newsletter

I confirm that I have read and agree to the Privacy Policy

Latest News

  • Business growth plans
    29 September 2022

    Introducing Lee!

    We have big plans for the future at CARS! To help us expand, both locally and nationally we required expert support. To accomplish this level of growth, we’re pleased to welcome our new Head of Business Growth, Lee Parker. Lee has numerous years of experience in business development and brings...
  • Q&A
    27 September 2022

    Behind the Scenes with a former HMRC Inspector

    As part of our specialist team, we are pleased to introduce you to Mark Doodney. Mark works within our technical team and provides invaluable insights into how HMRC may view our approach with particularly technical or quirky cases. Essentially, Mark is key in ensuring claims are processed in accordance...

Contact Us

Our expert team are here to help answer any of your capital allowances questions or enquires you have about your commercial property.

Sign up to our Newsletter

I confirm that I have read and agree to the Privacy Policy