hat is R&D Tax relief?

To keep it simple, Tax credits are a UK Government scheme created to reward companies that are overcoming challenges within their field.

The scheme has been around since 2000, it existed initially to help pharmaceutical companies that were aiming to make breakthroughs in medical science. The businesses would get back a percentage of their staffing costs along with consumables and anything else that could be associated with the ‘research and development’ aspects of their work. Because of the positive impact the R&D scheme had on this industry, the government decided to broaden the qualifying criteria, businesses outside of the pharmaceutical sector could now benefit from additional funds to encourage the growth of that business and the economy on the whole.

One of the biggest misconceptions with the scheme is that you have to be working in a laboratory to qualify. We do not think the name lends itself to the scheme particularly well. If we are to look at R&D Tax Relief as an incentive for businesses that use their expertise to overcome challenges.

So, who qualifies?

SME’s 

The Company must have less than 500 employees to be considered an SME, alternatively they must have a turnover under €100m. SME’s are able to claim up to 33% back of money spent on PAYE salaries, Sub-contractors, Consumables and Materials. 

Large Companies

Your company must have more than 500 employees or with both turnover over €100m and assets over €86m can claim back up to 11%.  The money will be paid as a corporation tax refund, or as a negative corporation tax. This will also be paid after the end of the financial year, which will be tax-free and can be used for anything.

If your company is spending money on enhancing existing products, developing new products, services or processes your company could be eligible to claim a tax refund.  This could also be carrying out projects for a client as well as your own business. The Government guidelines have also confirmed that the R&D project doesn’t need to have been successful to qualify.  To know if your project qualifies as R&D you must have set out to achieve an advance.

Industries that qualify for R&D Tax Relief…

  • Engineering
  • Construction
  • Pharmaceutical
  • Agriculture
  • Software
  • Offshore
  • Manufacturing
  • Aviation
  • Food and Drink

Examples of Projects which would not qualify would be things like copying processes, materials or existing products and also improving the quality of processes, materials or services. However, if you are using technology to create cosmetic and aesthetic products this may still qualify.

Costs that qualify for an R&D Tax Credit:

  • Direct staff costs, including salaries.
  • Software
  • R&D Consumables
  • Externally provided workers ie. Agency Staff
  • Subcontracted R&D

Costs that cannot be claimed for: 

  • Rent or Rates
  • Capital Expenditure
  • Production & Distribution of goods and services
  • The cost of patents or trademarks
  • The cost of land

Too good to be true?

Well, each year around £2.6 billion is invested in the Research & Development scheme and for every £1 that is paid out the government gets back £2.84. The idea of the scheme is that businesses will receive this tax relief and spend on their business, whether that is hiring staff, buying new equipment, or making other investments. As your business will grow you will pay more tax so it’s in the government’s best interest for your business to not only survive but to be successful.

How to claim… the process is simple!

Invest In Research and Development

You will find out your eligibility for claiming tax back at your initial meeting with our consultant. A summary of how your projects have met the definition of R&D will need to be provided. After a short discussion about the R&D projects that have been carried out within your business, our consultant will be able to advise you on the estimated tax refund you could expect from making your R&D Claim. We will make the process of going through your claim easy.

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