You Could Qualify for R&D Tax Relief!

12 Aug 2016

Many businesses are unaware that they can qualify for thousands of pounds worth of Research & Development (R&D) tax breaks.

The SME Scheme

Small and medium sized enterprises (SMEs) have had their tax credits substantially increased since 2015; the tax relief on allowable R&D costs is now 230%. This means that for every £100 of qualifying costs, your company could reduce their Corporation Tax by an additional £130 on top of the £100 spent.

SMEs are classed as such if they have less than 500 employees and an annual turnover under €100m, or a balance sheet under €86m. Unfortunately you don’t qualify as an SME if you are part of a larger enterprise that wouldn’t, as a whole, be classed as an SME. This includes having 25% or more shares in a company, or a company having 25% or more shares in your company.

I’m Not Sure if I Can Claim!

Most companies who miss out on R&D tax credits do so because they are unsure or unaware that they can claim. If you think your project matches the criteria below, the potential tax breaks are definitely worth finding out more. Check with your company's accountant to get their opinion.

Unfortunately if your company recieves a subsidy or grant for your R&D project, this could affect how much you can claim. If your grant is classed as 'state aid', you won't be able to claim anything. Make sure you read the information provided to check whether your grant or subsidy will affect your claim. 

Revenue and Customs (HMRC) have specialist units for you to contact with any questions. They also provide webinars to give a basic overview of the scheme and who is eligible. 

There are also many tax credit consultancy firms to give you a helping hand. Bath-based company Armadillo have made three successful claims so far with the help of such a firm, fully funding a new role within the company; Director of Innovation. Read their (and other companies') case study to find out more.

How to Qualify

If your project qualifies, up to 33% of qualifying R&D expenditure can be claimed. To qualify your project must:

  • Seek to achieve an advance in overall knowledge or capability in science and technology, by resolving scientific/technological uncertainty.
  • Relate to your company’s trade, or the trade your company will take up in light of the results of the R&D.

There are a couple of points to bear in mind:

  • Simply advancing your own state of knowledge or capability doesn’t count! You may create something that is new to you, but is already known to the wider world, it's not new research.
  • Any intellectual property that arises from the R&D must be owned by the company if they are claiming under the SME scheme.

You may be surprised as to what can be classed as R&D; for example, the creation of bespoke software to fit your company's needs, such as a new way for customers to buy tickets.

Gov.uk have lots of information on R&D tax relief, including guidelines as to what qualifies, and instructions on how to file your tax returns