What is Research and Development (R&D) Tax Credits?

Research and Development (R&D) Tax Credits is the UK Government initiative to promote business innovation and fuel business growth and transformation by offering research and development tax rebate. The tax credit works in two ways.

Businesses can either claim cash back amount or as a reduction in tax liability. You can claim for cash back on loss, tax reductions on profits or a combination of both. Any company that is spending money on new product development or existing product improvements is eligible for research and development rebate. For purpose of this tax rebate, “product” includes product, service or any process. The research and development tax credit can be claimed up to two years old accounting period.

Research and Development HMRC tax credit records show that businesses have been able to claim back up to 33p for every £1 spent on Research and Development activities.  R&D Tax Credits Scheme was first introduced in 2000 for Small and Medium Enterprises only. In 2002 R&D Expenditure Credit Scheme was introduced to allow R&D tax rebate relief for large companies too.

What are eligibility criteria for R&D Tax Credits?

You can claim R&D tax rebate incentives only if:

  • If you are limited company registered in UK and subject to UK tax laws
  • You have carried out qualifying research and development activities
  • You have already spent the money on these activities

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The scope of R&D rebates is huge considering that HMRC R&D manual  does not restrict it eligibility to any one sector or industry. It can take place in everything from butter processing to automotive engineering and from construction industry to advancement in digital marketing. HMRC guidance says that as long as you are taking a considerable risk by attempting to resolve scientific or technological uncertainties, you are taking a research and development activity. The scope of R&D tax rebate includes creating new product/process/service and/or changing or modifying existing product/process/service.

In order to be eligible for R&D Tax Credits, there is no compulsion that:

  • You have a large company
  • Your R&D activities are successful
  • You do not have enough costs

What Costs can qualify for R&D Tax Credits Schemes?

Practically, you can claim for any costs that are born to further R&D activities. This will include not only on actual research and development but also the Salaries, NI contributions, Pension Contributions and any reimbursed expense or paid benefits to personnel involved. Payments made to subcontractors, free lancers and agency workers also qualify as R&D costs. All the materials you use plus heat, light, power, water or any utility costs during the process will be included in R&D tax Credits claim. If you are using any kind of software or are paying for clinical trials and live experiments, you can get tax rebate on these costs.

There are some costs that you cannot claim for under UK Government R&D tax rebate. These include:

  • Capital expenditure
  • Land costs
  • Costs for patents and trademarks
  • Rents/rates
  • Production/distribution of goods and services

How to Claim R&D Tax Credits?

R&D Tax Credits can be claimed by using HMRC online services. However you can submit a R&D refund claim only if your company has already completed and files CT600- full Company Tax return Form. You will need to file separate claims, if considering R&D costs for a period of more than 12 months. You will require to provide a summary of what were the objectives of your research and development activities and what were the scientific and technological uncertainties involved. You will also include the outcome of the R&D activities in the summary.

Make sure your R&D rebate claim includes the accounting period for which you are claiming, total amount of R&D tax relief you are claiming with breakdown of qualifying costs and any unrelieved trading loss that you accrued during the said accounting period.

Certax Fitzrovia Limited has helped its clients recover thousands of pounds in R&D tax credits. If you wish to know if you qualify for Research and Development Tax Refunds, what costs can qualify or if your R&D counts as innovation according to HMRC definition, contact us today.


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