R&D Tax Credits Explained
The R&D Tax Relief scheme was set out by the UK Government in 2000. It was introduced to support pharmaceutical companies which were working towards making breakthroughs in medical science. Fast forward to 2020, the scheme has adapted to support many other businesses across various industries.
WHAT ARE R&D TAX CREDITS?
Research and development (R&D) tax credits are an incentive given by the Government which rewards UK businesses for investing in Research and Development.
Tax Credits are a valuable source of money for businesses that are investing in their growth and ultimately helps boost the UK economy.
HOW DO R&D TAX CREDITS WORK?
Businesses that invest money developing new products, processes or services; or improving existing ones, are likely to be eligible for R&D tax relief. If you’re spending money on R&D then you are entitled to make a claim.
If you are new to R&D Tax Relief and you’re making a claim for the first time, you can typically claim R&D tax relief your previous two years retrospectively. The scheme allows you to receive either a cash payment or a reduction in your corporation tax.
WHAT ARE THE BENEFITS?
This scheme financially supports millions of companies across the UK. Businesses that qualify receive a cash injection each year from HMRC.
This is money that is used to help the business growth, it allows them to invest back into their projects, staff and ultimately their future. Many businesses use the money to hire more staff, buy more equipment, materials, vehicles and so on.
HOW DO I CLAIM FOR R&D TAX?
We take care of the full claims process for you. You will have an initial call with one of our consultants who will talk you through our process and outline the areas where your projects qualify.
Once you become a client, you will be introduced to our customer relations manager who will let you know what we require from you.
You will be booked into a tech call with one of our consultants, they will gather all the information they require to be able to build your claim. The report will take around 6 weeks to write up your report. Once completed this will be sent to you for approval and if you are happy, your claim will then be submitted to HMRC.
Am I eligible for R&D Tax Credits?
To claim R&D Tax Credits there are a few key conditions that need to be met. These are:
You must be a limited company within the UK.
Working on projects where you are making a scientific or technological advancement in skill and/or knowledge.
Overcoming uncertainty – this means working in a way that is not your typical.
You must bear financial risk.
What costs qualify for an R&D Tax Credit claim?
You can claim back a percentage of money that you have spent from the date you start working on the project right up until the project is complete, even if the project was unsuccessful.
Staff costs – We are able to claim a percentage of your staffing cost for those who had direct involvement in the R&D work, including supervisory and managerial positions that are specifically directing the R&D activities. It also covers costs for external agency workers.
Subcontractors - The subcontracting cost can also be claimed. As a rule around 65% can be included in the claim, however it does depends on whether you are an SME or a large company.
Software - The money spent on computer software directly involved in R&D activities may be included.
Materials and Consumables - Consumables are materials that are used in the 'R&D' Projects. Included are materials, water, light, fuel and heat.
Industries We Support…
The scheme plays a vital part in supporting UK businesses and the economy. Here are some of the industries we support and some of their qualifying activities…
The Construction Industry is the UK’s second-largest sector.
Statistics show that the construction industry is missing out on a large chunk of money by taking less than 3% of the overall R&D Tax Credits awarded each year from HMRC
This is a real missed opportunity for construction companies, with millions of pounds going unclaimed. If you are carrying out projects where you are: Overcoming issues, developing new or ‘green’ products, making improvements to techniques, enhancing safety, testing and prototype, you are very likely to be entitled to claim back funds through the R&D Tax scheme.
The Engineering sector includes Civil Engineering, Software Engineering, Railway, Aerospace, Biochemical, Military and Marine, just to name a few. If any of the projects you work on include; developing new or improving products or processes, developing processes that would meet increasing regulatory requirements, the design and fabrication of technically improved products, integration of the latest technological advancement into a larger processing plant, then you are very likely to qualify for R&D Tax Relief.
In 2016/2017 The UK Gov supported the manufacturing industry with almost £1 Billion of R&D Tax Credits.
In a 2018 report from HMRC, It shows that 25% of the R&D Tax Relief claims belonged to Manufacturing Businesses. The Manufacturing industry was responsible for the greatest number of claims that year.
If you work in the manufacturing industry and you are doing any of the following you are very likely to be eligible for R&D Tax Relief; Streamlining manufacturing processes through automation, development of computer models, increasing ease of operation or suitability of manufactured products, designing innovative manufacturing equipment, prototyping and three-dimensional solid modelling and tooling, equipment fixture design and development and developing unique computer numerical control programs.
In 2017, only £10m of R&D tax credit relief was claimed by agricultural businesses, which accounts for less than 1% of all claims.
The average claim came to only £41,000, compared with £85,000 across other industries.
You are likely to be eligible for R&D Tax Credits if you are carrying out any of these activities: Agronomy, Disease and pest control, Vertical farming, Biotechnology, Nutrition, Energy and water efficiency, Automation, Soil management. In addition to this, if you are a farmer who has livestock you will be able to benefit from the scheme if you are doing anything to reduce the use of antibiotics, reduce aggression levels, improving menstruation cycle and implementing sterilised living environments.
HMRC released a report in October 2019, which shown a total of 42,075 R&D tax credit claims were made by SME companies in the year 2017-18 with software development projects in the top three industry sectors.
Extending existing mobile compatibility frameworks, Expansion of open-source platforms, Analysis of new and competing technologies, Product or software testing, Developing or maintaining your own platform or framework, Extending existing libraries, Implementation of the bespoke software platform, Difficulty integrating with a 3rd party system, Projects where you have inherited poorly document or complex code, Tools to extend the functionality of application software programs, Software to run new computer hardware, Means of integrating hardware and software platforms…. If any of these activities sound familiar, then you are likely to qualify!
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