R&D Tax Credits
R&D Tax Credits are a form of tax relief given to companies that have undertaken research and development activities in order to develop new products, services or processes or improve existing ones so that they can grow their business. They can be a great source of additional income that allows you to further develop ideas. You can claim these as either a cash payment, or a Corporation Tax reduction. When discussing your company’s R&D Tax Credits, we’ll assess which option would be better suited to your particular situation.
What is the definition of R&D?
HMRC and the Department of Trade and Industry have issued some guidance on the meaning of R&D for tax purposes.
For an activity to be considered as R&D it should aim to do the following:
- Seeking an advance in science or technology
- Attempting to resolve scientific or technological uncertainties
- Developing new & innovative products, processes or services
- Enhancing or appreciably improving existing ones
There are two schemes that exist for Small & Medium Enterprises (SME R&D) and one that exists for larger companies – Research & Expenditure Development Credit (RDEC).
This is the classic R&D Tax Credit that most literature you would have seen talks about. It allows you to claim up to 33p for every pound spent on R&D.
This is a tax relief that applies to larger corporations, with either an employee count of over 500, a turnover of more than €100m or Gross Assets of more than €86m. It allows you to claim 12% of your qualifiying expenditure.
What expenses can I claim as Research & Development?
There are several areas that can qualify for tax relief, which include:
- Staff costs, which include their Gross salary, employer’s NIC, pension contributions and other expenses.
- Subcontractors and freelancers, with up to 65% of their fees being recoupable.
- Externally provided (agency) workers’ fees, but not the agency fees charged to find the workers.
- Materials and consumables including heat, light and power that are used up or transformed by the R&D process.
- Certain types of software, including items that are used for other purposes as well.
Can Capital Costs be claimed?
Capital costs aren’t able to be claimed under this relief, but you may be able to claim them through your Annual Investment Allowance. We can help you to understand what you’ll be able to claim once we have undertaken an assessment of your R&D claim.
You can still claim R&D tax relief if you have received a grant – contact us for more information.
If you are making your first claim, then you could qualify for Advance Assurance. This means that for the first three accounting periods, your claim will be allowed without further enquiries from HMRC. You can do this at any time before your first claim and if you don’t do it, you can still claim the credit regardless.
Could you be eligible for Video Games Tax Relief too?
Video Games Tax Relief (VGTR) is a government scheme that allows UK game developers to apply for tax relief funding from HMRC. If you design video games, then you could be eligible.