Frequently Asked Questions
R&D tax reliefs are among the most under claimed tax incentives currently available in the UK. HMRC has reported that only 5% of eligible firms claim under the relevant legislation.
Why? Many business owners believe that they aren’t eligible for R&D tax relief because they don’t have a laboratory or a dedicated R&D division. When in fact, this is far from the truth.
To get you informed and in a position to claim, read our answers to your most common questions around R&D tax relief below.
R&D tax relief helps you reduce your tax bill for any research and development initiatives in your business. By that we mean: any unique solutions you design or develop yourself to solve a problem with your processes, products or services.
The scheme was introduced by the government in 2000 to incentivise UK businesses to invest in science and technology advancements. In 2016 the legislation changed, opening the scheme up to more companies in the UK (limited and PLC companies).
Roll forward to 2020 and prime minister Boris Johnson upped the R&D investment from seven billion to twenty-two billion per year. The government wants to reward businesses that are actively overcoming technical challenges and developing innovative products to forward their business.
You don’t need to have a laboratory or a dedicated R&D division to be eligible for R&D tax relief. Most likely, you will qualify if you can answer ‘yes’ to the following questions:
- Does your company develop unique products or processes?
- Is your company aiming to improve products or processes to drive efficiency?
- Has your company looked for an advance in science and technology?
- Do you employ technical staff, process engineers or engineers specialising in science or technology?
- Does your company incur expenditure on staff costs, consumables or subcontractor costs to develop unique products or processes?
Your company can be large or small; limited or PLC.
If you’re an SME, the formal prerequisites are:
- you have less than 500 staff
- a turnover of under €100 million; or
- gross assets of under €86 million
Find out if you’re eligible for R&D tax relief using our free Eligibility Checker.
R&D claims aim to either reduce the amount of profits subject to corporation tax or increase tax losses. To claim, you need to work out all your qualifying expenditure for the project (or projects). Work with an R&D tax specialist to make this task easier.
You will likely qualify for R&D tax credits if you have worked on (or are currently working on) projects that require unique solutions to create new or enhanced products, services or processes.
Sometimes this can be tricky to work out on your own. Get support from an R&D tax specialist like Recoup to make this stage painless. We can help you figure out exactly what activities qualify for relief and what don’t.
You can claim R&D tax credits on revenue expenditure (day-to-day operational costs). This includes:
- 100% of the costs of staff salaries, employer’s NIC, pension contributions and reimbursed expenses
- 65% of the costs of hiring subcontractors and freelancers
- Materials and consumables including utility bills (water, fuel and power) that are used up or transformed by the R&D process.
- Certain types of software (e.g. if you’re implementing a bespoke system to streamline your product of process to drive efficiency)
- Payments to the subjects of trials or failed projects (e.g. if you’re an architect firm tendering five to ten jobs a month and only win one contract, but you’ve done the R&D on producing the assets, the work undertaken is usually eligible)
- Capital expenditure (money you may have spent on fixed assets such as land and buildings) isn’t eligible R&D expenditure within the claim.
The amount of R&D tax relief you can claim depends on your company size. If you’re an SME, you should be able to reclaim up to 33% of qualifying expenditure in the form of corporation tax credit.
If you own a large business with more than 500 staff and have over €100 million in turnover, you can claim a Research and Development Expenditure Credit (RDEC) for working on R&D projects. The RDEC is a tax credit, which is currently 13% of your qualifying R&D expenditure.
For companies that have paid off their corporate tax, relief can come in the form of a cash payment.
It depends on the route you take to make a claim. The fastest way to see funds is to use an experienced R&D tax advisor. Recoup aims to complete your claims process in six to eight weeks. But since the government is trying to get as much money back into businesses as possible due to the pandemic, we’ve seen payments being made between two and four weeks.
The SME R&D tax credit scheme is considered to be state aid. Already received a State Aid grant for your project? This may affect your claim. Your tax advisor can help you work out how.
For larger companies, the research and development expenditure credit (RDEC) is not considered state aid. In which case, your R&D tax advisor may be able to find a way that means you can use both types of funding.
You bet! The scheme’s purpose isn’t focused on the project’s outcome. It’s the investment your company makes towards technological advancements. In other words, it’s your intent to be innovative that matters.
Again, the purpose of the scheme is to reward your company for its innovative endeavors. If your project’s costs fall within the financial year you’re intending to claim for and the eligibility criteria are met, then you can make a claim.
Also, if the project is ongoing, you may be able to make future as well as past claims (you can backdate the R&D claim two financial years).
You can still claim for R&D tax relief if your company is making a loss. Because the scheme is designed to help anyone who’s made R&D expenditures towards science and technology advancements.