Receive up to 27p for every £1 spent on R&D
An average claim of £50k+ with no minimum claim
Any industry or sector can make a claim
What are R&D Tax Credits?
The R&D Tax Credit scheme is a UK government incentive introduced in 2000 to promote innovation through research and development. Since the inception of the scheme in 2000 over £26 billion has been claimed and it is growing year on year.
You are able to make a claim in your CT600 and you support this by sending an R&D report to HMRC, which they aim to process the claims in 40 days. You are allowed to claim for the previous two accounting periods. Once you pass the deadline it is gone and you can never get it back. You can make a claim even if the project failed and you can potentially claim back 20% of qualifying expenditure.
To be eligible there is a shortlist of qualifying criteria:
What is Qualifying R&D?
HMRC has strict definitions of what is R&D for the R&D tax credits scheme. They can be very complicated with a lot of “grey” areas, which is why it is advised to have a specialist aid you with this. In short, HMRC considers R&D “Work that advances overall knowledge or capability in a field of science or technology, and projects and activities that help resolve scientific or technological uncertainties, may qualify for R&D relief”
To qualify as Research & Development (R&D) for HMRC purposes, certain key criteria must be met:
The project should aim to create an advance in a specific field. This could involve developing a new process, product, or service, or significantly improving an existing one.
There must be uncertainty that a competent professional in the field cannot easily resolve. This often involves trial and error, multiple iterations, and extensive research to find a solution.
The work must seek to advance science or technology. HMRC does not consider projects within the arts, humanities, or social sciences as eligible. Simply being “commercially innovative” is not sufficient.
The R&D must be led by someone with the necessary expertise in the relevant scientific or technological field. This can be demonstrated through qualifications or significant industry experience.
What is the Qualifying Expenditure?
The financial side of an R&D claim can be very complicated, and many different factors can affect what is and isn’t eligible, and what percentage is allowable. This is why we advise having a specialist aid you with an R&D claim. You are able to claim a lot of the costs associated with an R&D project. Below is a summary of what is and isn’t claimable.
You can claim for salaries, wages, Class 1 NICs, and pension fund contributions for staff engaged in the R&D project. Salaried directors and a fair proportion of indirect supporting staff may also qualify. In some cases, employee expenses can also be eligible.
You can claim 65% of the costs for subcontracted R&D or externally provided workers involved in the R&D project. However, subcontractors are not eligible under the RDEC scheme.
You can claim for the cost of software used directly in R&D, as well as a fair proportion of software that is only partially used for R&D purposes.
You can claim the cost of materials and a proportion of water, fuel, and power consumed during the R&D process. This includes prototypes, provided they are not sold. Heating and lighting are also eligible if charged separately from rent.
Capital expenditure is not eligible. However, a generous 100% Research and Development Allowance may apply to capital assets such as plant, machinery, and buildings used in R&D activity.
Patent costs are not eligible under the R&D scheme. However, you may be able to reduce your corporation tax by up to 9% on qualifying IP-related profits through the patent box scheme.
Rent, business rates, and land costs are not eligible. However, heating and lighting may be eligible if they are charged separately from the rent.
The cost of producing or distributing goods and services is not considered eligible expenditure under the R&D scheme.