A guide to research and development tax credits

research and tax credits

More businesses across the UK are choosing to claim for research and development (R&D) tax credits, but the guidelines and eligibility criteria can be ambiguous and long-winded. We’ve put together a comprehensive guide to R&D tax credits, to help you figure out how your business can benefit from them.

What is research and development tax credit?

Research and development tax credits are available to eligible companies, to help them claim back funds for projects that involve innovation in technology or science fields. Even if the project was unsuccessful, a business may still claim tax relief on the work it carried out.

Which businesses are eligible for research and development tax credit?

There are two types of R&D tax credit; RDEC (Research and Development Expenditure Credit) and SME R&D relief. The key difference between the two is that RDEC is only suitable for businesses with over 500 staff, a turnover of above €100m or balance sheet total over €86m. If you are an SME that has been subcontracted by a large company to carry out R&D projects, you may be eligible to claim under RDEC rather than SME R&D relief.

If you wish to claim R&D tax credit for a specific project, it must involve work that tries to make an advance in science and technology areas. If you’re looking to claim research and development tax credit, HMRC states that you need to be able to show the 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.

 

These guidelines can seem a little ambiguous, so if you’re unsure if a project qualifies for tax relief, it is best to contact one of our specialists for further advice.

How much research and development tax credit can I get?

The amount of tax credit you can receive depends on if you’re claiming under the RDEC scheme or the SME R&D relief scheme.

If you are eligible for RDEC accounting treatment, you will receive a tax credit for 11% of your qualifying R&D expenditure.

If you fall under the SME R&D scheme, you can:

 

  • Deduct an extra 130% of qualifying costs from yearly profit, as well as the normal 100% deduction, to make a total 230% deduction.
  • Claim a tax credit if your company is loss-making, worth up to 14.5% of the surrenderable loss.

Impacts of the Autumn statement

In this year’s Autumn statement, the Chancellor focused on embracing change and technological advancement, with R&D tax credit being a key a part of this.

It was promised that the government would make up any shortfall arising due to the EIF (European Investment Fund) freezing investment into UK funds. An extra £2.3bn will be ploughed into R&D credits between now and 2022, bringing the annual total to around £12.5bn.

The Chancellor also announced that R&D tax credit would be raised by 1% to 12%. It is worth noting, however, that this only applies to the RDEC (Research and Development Expenditure Credit) scheme.

How to claim research and development tax credit

The process to apply for research and development tax credit is long and complicated, with HMRC often changing the criteria of what exactly counts as an eligible project. If you’re considering applying for tax credit, it is best to consult an expert who deals with similar cases on a day-to-day basis.

Take a look at the tax services we offer, including R&D tax credits, and get in touch if you would like further advice about making a claim.