Part 1 | R&D Tax Credit Calculation
What can be claimed & what costs are eligible
What Can Be Claimed?
SMEs are able to claim up to 33p for every £1 spent on qualifying R&D activities. The average claim made by SMEs in the UK is £57,228 (2018-19). Large companies are able to claim up to 11p for every £1 spent on qualifying R&D activities. The average large company (RDEC) claim in the UK is £632,931 (2018-19).
What would you do with a £57,000 tax rebate?
Well, if you don't start the process, you’ll never find out.
These numbers are very broad, as every company is different and they can be misleading, as you are never guaranteed to get £57,228 when you put your claim in.
3 factors that can affect the value of your R&D tax credit claim:
The size of your company
The amount of Corporation Tax you pay
Whether you are profit or loss-making
No matter your position, there is a benefit in making a claim, as returns can vary between 14.5% and 33% for SMEs.
What costs are eligible for R&D tax credit?
Direct staff costs – this is the cost of paying your employees who have worked directly on the R&D project and include costs such as; gross salaries (including wages, overtime and cash bonuses), employer NI contributions, employer pension contributions and certain reimbursed business expenses.
Subcontracted R&D – this usually means that a portion of your R&D project has been outsourced to another company for an agreed amount. SME’s can claim up to 65% of their subcontracted R&D costs.
Externally Provided Workers (EPWs) – external workers employed to work specifically on an R&D project may be eligible for an R&D tax credit claim. External workers are individuals provided through a recruitment company or staffing provider e.g. agency, third, contractors, or freelancers. Tax credit relief allows you to claim 65% of the payments made to the agency.
Consumables – materials and resources that are used up or consumed in your qualifying project, such as water, fuel and power can be included in your claim. In addition, materials consumed or transformed in the process can be included, such as materials used in the construction of prototypes. These costs fall into one of two categories either apportioned expenses or wholly as R&D expenses. You can not claim for materials which were not used up in the R&D process or used for products that were sold onto a client.
Software – software which was needed for qualifying projects or involved in qualifying projects activities may be included but must have been developed / purchased for the project. If the software was partially used, then its price must be apportioned. However general software such as email hosting, Microsoft Office and website hosting would be excluded.
To unlock a higher level of rebate, you do need a specialist to look at this for you. There are plenty of software applications out there at the moment and even accountants are saying they can complete this work.
Well, they may be able to, but they will not be able to maximise your claim and neither will the software. I generally go by the rule; you get what you pay for. There are always corners we can cut, but there is then generally a price to pay.
So to maximise your R&D claim, please contact us.