17 December 2020
ESSENTIAL SUPPORT AVAILABLE: Research and development tax incentives
Research and development tax credits are a generous form of support and often businesses do not realise they are entitled to claim them. Our latest article hightlights how the scheme works, read on to find out more...
R&D tax credits and who can claim them
Never has the world been more collectively invested in science and technology than it is currently. Scientists are working on a vaccine for the coronavirus as they continue to research the condition and how to treat it. Advances in technology have been required not only alongside the scientific research, but to keep businesses moving under very different circumstances to those prior to the pandemic.
The UK government offers research and development (R&D) reliefs as a way of supporting companies working on projects in science and technology. A firm looking to make an advance in its field can apply for R&D relief, even if the project is unsuccessful. The relief is claimed against corporation tax, so only companies registered with Companies House are able to apply, and the relief is only granted if the R&D meets the government's definition.
The project must be working towards an advance in science or technology. Social sciences, such as economics, together with theoretical fields such as pure mathematics are not accepted. The project must relate to what your company does for a trade currently, or what it hopes to do as a trade in the future, based upon the R&D outcome.
If you wish to successfully claim R&D relief, the project may be to research and develop a new product, process or service or to advance an existing one and you must explain how the project: sought an advance in science or technology, had to overcome uncertainty, tried to overcome this uncertainty, and could not be worked on by a professional in the field.
The R&D relief to be claimed depends upon the size of your company and whether the project has been subcontracted to your company or not.
SME (small and medium-sized enterprises) R&D relief applies to companies with less than 500 employees and a turnover of under €100m or less than €86m balance sheet total. SME R&D relief allows smaller firms to deduct 130% of qualifying costs from the firm's annual profit, on top of the normal 100% deduction and claim a tax credit of up to 14.5% if the company is loss-making.
Research and Development Expenditure Credit (RDEC) replaces the R&D relief previously available for large companies. Large companies - and SMEs who have been subcontracted to undertake research and development work for a large company - can claim a RDEC. The RDEC is a tax credit which has increased over time. Up to 31st December 2017, companies could claim 11% of qualifying research and development expenditure. This increased to 12% between 1st January 2018 and 31st March 2020 and is now at 13% since 1st April 2020.
Qualifying costs are applicable from the date the company started working on the project until the date an advance is discovered, or the project is stopped. The company can claim a proportion of staff costs for those working directly on the project. Any work which would have been carried out anyway, such as administration or maintenance, cannot be claimed for.
If an external agency provides staff for the project, up to 65% of their fees can be claimed. All materials and utilities (consumable items) can be claimed for. Subcontractor costs are not applicable unless the subcontractor is a charity, an institute of higher education, a health service body, a scientific research organisation, or an individual or partnership of individuals.
The project starts when the company begins working on it. If there is already a solution to the uncertainty the company is looking to resolve, the project is not applicable for R&D relief. The claim period must end once there is a prototype solution and before production commences. If, once production begins, a further uncertainty is identified, a new period of research and development may commence while this is resolved. A claim can be made up to two years after the accounting period to which it relates.
Could you be entitled? We can make your claim!
We specialise in claiming R&D tax credits and have had vast amounts of success for our clients. Get in touch with us today and let us help you and your business during these difficult times. Contact our Director, Nick Bonnello, directly on 0115 964 8860 or email him at firstname.lastname@example.org to find out how we can help you across all areas of your business.
The views provided in this article are for general information purposes only. Nothing in this article represents advice of any nature whatsoever. Accordingly, RWB CA Limited does not accept any liability or responsibility for the information contained in this article or any decision or other action that may be taken in reliance upon the information contained within it. RWB CA Limited accepts no responsibility for any errors of fact or opinion and assumes no obligation to provide you with any changes to its assumptions.