The Research and Development (R&D) tax credit is a relief available for companies working on innovative projects or improving business components. The R&D claim is made via the company tax return, and the credit can be used to reduce the corporation tax payable or received as a cash payment. The R&D tax credit is available to most sectors, and you can generally claim for the past two accounting periods. However, there are certain criteria that need to be met.
Most sectors can make an R&D claim whatever the size of their business, although different rules apply for SMEs and large companies. The advancements must be in science or technology but exclude social sciences and theoretical fields. The project must relate to the trade of the company or one that the company intends to undertake.
To make a claim, you need to explain how a project:
· Looked for an advance in science and technology
· Had to overcome uncertainty
· Tried to overcome this uncertainty
· Could not be easily worked out by a professional in the field.
It may be that the project also reached or developed a new process, product or service, or improved an existing one.
You can claim R&D on day-to-day operational costs such as:
· Staff and subcontractors
· Payments to the subjects of clinical trials
Generally, capital expenditure is not included in the claim.
SMEs can claim up to 33p for every £1 spent on qualifying R&D activities. SMEs are classed as having fewer than 500 staff and one of either no more than €100 million turnover or €86 million in gross assets.
Large companies can claim up to 11p for every £1 spent on qualified R&D activities. Companies that do not meet the SME requirements above would be considered as large companies.
For the clients, funding for their projects can help you grow your business. For the UK Government, it can lead to innovation being done here in the UK. It is hoped that R&D will grow the economy but increase productivity as well as positively affect the world.
Many companies could be undertaking work that could be classed as R&D and not claiming it. This means that they could be missing out on reducing their corporation tax. If you were to approach a professional to help with your R&D claim, the fee would most likely be deducted from the credit they could claim back for you.