R&D Tax Credits - Key Facts​

  • ​R&D Tax Credits relief was introduced for SMEs in 2000 - since then over 39,000 SMEs have claimed their share of this tax relief
  • This Government tax incentive has improved year on year and is now arguably the single most generous source of funding for SMEs - in fact, UK SMEs shared just over £1bn last year
  • UK SMEs can recover up to 33.35% of their R&D expenditure as R&D tax credits cash payments from HMRC 
  • Total amount of qualifying expenditure on R&D in 2014-15 was £21.8bn 
  • Overall there were over 22,000 claims for R&D tax relief with the total amount of R&D tax relief claimed topping £2.45bn
  • HMRC has specialist R&D Tax Credits Units that review and process R&D tax claims
  • A R&D tax incentive was introduced for Large Companies in 2003 - R&D Tax Credits can be claimed under this scheme since 2013 

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Who is eligible for R&D tax credits?

This UK tax incentive is extremely broad in its application and can apply to companies across all different sectors (unfortunately the name "R&D" tax relief often results in companies (wrongly) thinking it doesn't apply to them).

The key message here is not to be put off by the title "research and development" and instead to focus on the technical project work that your company might have undertaken over the past couple of years and to what extent it sought to achieve an advance in your sector?    

Here are just some of the company sectors that we have successfully helped claim R&D tax credits:

Software sector

  • Software development
  • Software-as-a-Service (SaaS) platform dev
  • Cyber-security
  • CRM systems
  • Media platforms
  • Fintech platforms

Games sector

  • Games development
  • Back-end-as-a-Service (BaaS) systems
  • Game / edutech brain training
  • Virtual currencies

Ecommerce sector

  • Ecommerce backend
  • Logistics automation
  • Auction platforms
  • Payment platform integrations
  • Bluetooth tracking

Mobile sector

  • App development
  • Music apps
  • Media hosting platforms
  • UX improvements
  • E-reading platforms

Construction sector

  • Construction materials
  • Lighting design
  • Bathroom design
  • Business Information Systems
  • Room layout imaging

Health sector

  • Cell research
  • Medical devices
  • Hospital tracking software

Food & Drink sector

  • Recipe formulations
  • Water efficiency
  • Hotel booking system

Engineering sector

  • Advanced engineering
  • Oil & gas
  • Motor sports

Manufacturing sector

  • Music consoles
  • Beds
  • Lighting
  • Bathrooms
  • Footwear

Health & Safety sector

  • Health & safety software
  • Resource allocation
  • Hospital tracking software

Travel sector

  • Drone development
  • Travel doc security
  • Freight tracking

Your Company

  • ...................

This should give you an idea of the breadth of application of the R&D tax credits incentive...

​The good news is that more and more companies are starting to realise the potentially significant year-on-year tax cashflow savings that the R&D tax relief can bring - but there is still much further to go...

22,000+ R&D tax credit claims filed yet c5m UK companies - many must be missing out.... @iptaxsolutions #rdtaxcredits

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Will my Company's activities qualify for R&D Tax Credits?

The first important point to note about the UK R&D Tax Credits incentive is its breadth of scope.

It can apply to any company in any sector so long as your company is seeking to develop a new product or service or improve on what's already out there in the marketplace.

There are three key pointers to help you identify qualifying activities for R&D tax purposes:

  • You are seeking to develop a new product or service that would result in an technological advancement on what's already out there
  • You and / or your team are competent in your field but you're not entirely sure how you are going to achieve your objective from a technical perspective i.e. there is technical uncertainty
  • You have taken on financial risk by deploying your staff onto this technical project; perhaps taking on subcontractors to help solve it and / or investing in parts and materials (plus energy costs) used up in the project

We often find that companies are quick to dismiss their eligibility for R&D Tax Credits based on an incorrect assessment by their accountant or simply themselves - given the amount that is at stake for companies, this could be a costly mistake!

Fortunately, a short discussion with experienced R&D tax specialists like ourselves (who have successfully filed and negotiated R&D Tax Credits submissions with HMRC for many years) ​typically helps identify projects that qualify for R&D tax credits relief

Creating new products / services or improving on what's already out there? Yes - you might be eligible for #rdtaxcredits @iptaxsolutions 

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What is an SME for R&D tax purposes?

  • Headcount of less than 500 staff AND either
  • Balance Sheet assets of less than €86m OR
  • Turnover of less than €100m

These relatively high thresholds for R&D tax credits purposes means that the majority of UK companies will fall under the more generous SME R&D tax scheme

​A Large Company for R&D tax purposes is a company that exceeds the SME thresholds. 

You also need to take into account parent and subsidiary companies and other interests in your company to determine the relevant SME thresholds

The RDEC scheme is available for Large Companies


How do you claim R&D Tax Credits?

R&D Tax Credits Relief is claimed via your company's annual corporation tax return.

A claim either reduces corporation tax payable for profitable companies or can result in a cash tax credit payment from HM Revenue & Customs for companies that are loss-making

  • Profitable tax paying company: benefits from a reduction in corporation tax paid / payable
  • Loss making company: benefits from enhanced tax losses or can surrender for an immediate cash tax credit receipt from HMRC
  • So in either in a profitable or loss-making scenario, the R&D tax relief can deliver positive cashflow savings

Profitable SME company

26% of R&D expenditure is recoverable since 1 April 2015

Example:

£100,000 qualifying R&D spend in the period

230% R&D tax relief (notional uplift for tax only)

£130,000 additional tax deduction against taxable profits

Results in £26,000 tax saving at 20% corporation tax rate

Loss-making SME company

33.35% of R&D expenditure is recoverable since 1 April 2015

Example:

£100,000 qualifying R&D spend in the period

230% R&D tax relief (notional uplift for tax only)

£130,000 additional tax deduction against taxable profits

Surrender for £33,350 tax credit at 14.5% R&D tax credit rate


What R&D expenditure is eligible for R&D Tax Credits?

  • Staff Costs
  • Subcontractors
  • Externally Provided Workers
  • Software
  • Consumables

R&D work that has been subcontracted to third parties can be claimed at a rate of 65%

Qualifying subcontractors can be worldwide i.e. they don't have to be in the UK

Modified rules apply for group situations

For each of the above categories of qualifying expenditure, it is necessary to consider what percentage of the total cost applied to the R&D project work. We can help you navigate these requirements


R&D Tax Credit Claim Process - Made Easy

You might be surprised by just how straight-forward the R&D tax claim process can be when we apply our simple tried-and-tested 5 step process:

​Step 1

A short discovery call to discuss your company's activities and to give you a "heads up" on the potential qualifying nature of your work

We won't waste your time if we don't think your activities qualify for this relief based on our extensive experience​

​Step 2

A meeting with you (and your technical team) to discuss all of the qualifying projects that the company undertook over the accounting periods ending in the past two years

From this meeting, we will collate the necessary technical and financial information to commence our detailed work on compiling the R&D tax claim

​Step 3

We will prepare the detailed technical report and supporting claim calculations in a format that HMRC prefer

We take care of all the prep work so that you can get on with running your business

​Step 4

We will agree on the final version of the report and claim calculations

We will share the claim figures with your accountants for inclusion in the (amended) company tax return(s). Or we can prepare amended returns for you

​Step 5

We will ensure that your R&D tax claim is filed with the relevant specialist HMRC R&D Unit and will track it through to agreement

HMRC normally process R&D tax claims within 4-6 weeks resulting in the cash being transferred to your bank account - only at this stage do you pay us our pre-agreed fee


Discover How the UK R&D Tax Credits Incentive Could Benefit Your Business

Access this email course now (whilst it's free)

Your privacy is important to us. Your email address will never be shared.

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Is it worth bothering claiming R&D Tax Credits?

Put simply there aren’t many Government-backed tax incentives that will actually put money in your bank account to support the technically challenging and valuable work that you are undertaking – let alone often within just 30-60 days of filing!

Average successful claims are £40,000+ and we have successfully secured several six figure cash tax saving claims within 5-6 weeks of engagement – consider in comparison:

  • how much equity you might need to give up to secure these levels of external investment?
  • stress of guarantees from the bank to receive this level of loan funding? or
  • products / services you would need to sell to secure this level of ‘profit’ direct to your bottom line?

Our clients have been absolutely thrilled with the results that we have secured for them and have used the R&D tax credits to invest in more staff, bigger premises and more technically advanced projects to keep them ahead of their competition

And remember, these are potentially year-on-year tax rebates if the R&D project work is ongoing!​

What could you use your R&D tax credits cash tax savings for?