One of the aims of the government in recent years has been to make the UK a place of innovation and development. To help inspire companies to do this or to help with costs of such research, they introduced a system of business tax credits. Many companies don’t claim this credit because they think it doesn’t apply to them – but they may be wrong and apply for this R&D tax relief is a relatively simple process once you know you qualify.
R&D tax credits explained
The research and development (R&D) tax credits are a way that the government helps businesses that are involved in developing new technology or working on new scientific breakthroughs using the tax system. For businesses that make use of the system, research shows that around 80% of them found themselves in a better financial position for having done the work – able to hire new staff, continue with research and even enter into new business areas.
R&D tax credits for small and medium enterprises
For businesses with less than 500 staff and a turnover of either less than €100 million or €86 million gross income, the SME’s tax credit applies. In this, a business can claim back up to 33% spent on research and development, regardless whether the business is making a profit or not.
In 2017, businesses that did make a claim through the system saw an average return of around £60,000.
What qualifies under the R&D tax credits scheme?
The reason that many businesses don’t claim under the scheme is that they are unsure if the work that they are doing could qualify under the scheme. This leads to uncertainty and the decision that time spent trying to claim could be better spent elsewhere. However, there is a surprisingly large amount of research that can fall under the R&D tax relief system.
The basic qualification is that the work is taking a risk to ‘resolve scientific or technological uncertainties’. This means that if the business is creating new products, process or services, then it may be eligible. It could also be the case if the business is changing or modifying an existing process, product or service. And the most important fact is that the research doesn’t have to be a success to make a claim – failed projects contribute to knowledge and are also eligible.
Examples that have already been accepted by HMRC and the tax credits given to the business include:
- Translation software
- iPad and iPhone applications
- Bespoke time recording systems that incorporated billing
- New web-based customer relationship management systems (CRM)
- Dedicated software apps for sub-contractors
The project needs to have a clear start and end date and must involve a process over a period of time rather than a spur of the moment discovery.
What R&D tax relief can businesses claim for?
If a business thinks that the work it is doing might qualify, then how exactly does it work out what it can claim for? Again, there is clear guidance as to what can and cannot be claimed for under the scheme.
You can claim for the costs of staff working on the project, based around the time they spend on it. These can be gross of salaries, national insurance contributions and pension contributions but the person must have the right background for the project. There are some situations where businesses can claim for subcontracted work but it is limited to 65% of costs and there are other rules apply.
Software that is specifically for the project can be included in the claim along with items and materials used or consumed during the research. This includes things such as heat, light and power but only used in connection with the project, not for the larger business.
Getting help to make an R&D tax relief claim
A further step to ensure businesses claim what they are due is the development of services such as those offered by Easy R&D. This enables businesses to go through a process to discover if they qualify for the tax credits and if so, quickly and easily submit the documentation. Many businesses using the service get the money due to them within six weeks and this can greatly help the continued success of the company.
The system will involve asking a number of questions about the nature of the research such as:
- Is it in a field of science or technology?
- Is the work improving what is currently available?
- Is it a scientific or technological advancement?
- Is it working on a current uncertainty?
- Are you investigating and testing results?
Once it has been ascertained that the work will qualify under the system, the information can be gathered to support the costs involved. This can then be submitted through the relevant part of the T&D tax credits system to get the business the money that it is due or the credit against the following year’s tax if this is the case.
Research and development is crucial to expand our knowledge of all things and the government’s system rewards those involved in it. Finding out if your business’s work qualifies is now easier than ever and there’s no reason why every qualifying business cannot get the money that the government has set aside for the, allowing them to continue the work into the future and also make a profit.
Easy R&D have helped hundreds of companies to make R&D tax relief claims. Contact your nearest R&D Consultant to see if you can claim – 0800 195 7516