VAT and R&D tax credit claims
Can you include VAT in your R&D claim?
Normally you can't include VAT costs within an R&D tax credit claim. The exception to this rule is if your VAT costs are not recoverable through a VAT return. Whether this applies to you will depend on your company's VAT classification.
VAT classifications and R&D tax credits
There are four VAT classifications:
-standard rate (20%)
-reduced rate (5%)
-zero rate
-exempt
If you are classified as standard, reduced or zero-rated, you will be able to recover your input VAT (the VAT on your costs) in your VAT return. Therefore, you cannot include VAT costs relevant to your R&D expenditure in your R&D tax credit claim.
However, if you are classified as exempt — like insurance companies for example — your input VAT cannot be recovered in a VAT return. It is therefore part of the goods and services to which it has been charged. In this case, you can include it as part of your R&D tax credit claim.
R&D costs that attract VAT
Expenditure on sub-contractors, materials and utilities could attract VAT. It is therefore important that these are handled correctly according to your VAT classification.
Typically staff costs are the most significant part of an R&D tax credit claim and these do not attract VAT. So in many cases, VAT is not particularly relevant to an R&D tax credit claim.
To maximise your R&D claim, please contact us.