Research and Development Tax

What are research and development tax credits?

Research and development tax credits are a UK government incentive aimed at encouraging businesses to invest in innovation and technological advancements.

These incentives are designed to promote innovation and creativity, boost competitiveness, and stimulate economic growth by providing financial support to businesses investing in research and development activities.

In the UK, there are two main types of R&D tax relief schemes:

1. R&D Tax relief for SMEs (Small and Medium-sized Enterprises)
   SME’s can claim an enhanced deduction of 230% of their qualifying R&D expenditure. This means for every £100 spent on qualifying activities for R&D, the company can deduct £230 from its taxable profits. In cases where an SME finds itself in a taxable loss situation, SME limited companies can choose to surrender the losses generated by R&D activities in exchange for a cash refund, subject to meeting certain criteria.
2. R&D Expenditure Credit (RDEC) for large companies
   Large companies that do not qualify for the SME scheme can seek to claim R&D tax credits using the RDEC scheme.

There are many benefits to making research and development claims. These include:

• Financial incentives, including tax relief claims and cash refunds.
• By investing in R&D and making tax credit claims, you gain a competitive advantage by fostering innovation and growth.
• The tax savings received through R&D tax credits can help you allocate more resources towards future research and development projects.

How do R&D tax credits work?

R&D tax credits work by reducing the amount of taxable profit a company makes in an accounting period by an additional 130% of qualifying expenditure on R&D activities.

If the business is profitable, then it will reduce the amount of corporation tax payable to HMRC. If the business makes a loss, then the loss that is generated due to the enhanced expenditure on R&D activities can be repayable to the business.

Step 1. (Eligibility Check) – Is your company eligible? The first step in making a claim is to ascertain whether or not you meet the specific criteria.

To qualify for R&D tax relief, your company must be carrying out the following qualifying activities:

1. The work must seek to advance science or technology.
2. This work must involve a degree of scientific or technological uncertainty that cannot easily be resolved by a competent professional in the field.

Step 2. (Expense Documentation) – You must meticulously document all eligible expenditure relating to your qualifying projects. It is crucial to ensure that detailed records of these costs are maintained.

Step 3. (Claim Preparation) – Now, you should prepare the claim. In addition to cost details, HMRC requires an additional information form, which should detail the work undertaken and demonstrate why the projects qualify for research and development expenditure credit.

Step 4. (Submission) – Finally, you will submit the claim for evaluation and processing.

Who can claim R&D tax relief?

To make an R&D tax relief claim, you must be a UK-registered business that is liable for corporation tax. However, it is essential to consider all other factors relating to your company’s activities, such as the specific eligibility criteria for R&D tax relief, as they may vary depending on the size, nature and research and development activities your business undertakes.

This is why it is strongly advised that you talk to a tax professional such as Spotlight Accounting, who can ensure you meet all the relevant criteria.

Our research and development tax service

Spotlight Accounting’s research and development services deal with the entire process on your behalf. Our tax team are here to help with the following: