As part of our ‘Planning for Growth post COVID’ series, we are looking at R&D (Research & Development) tax credits as a source of fast cash funding. In fact, HMRC are prioritising R&D claims, committing to a target of processing more than 90% of claims within 28 days of receipt. So R&D tax credits provide a real source of fast cash funding / tax relief.
Since the Government launched the R&D tax credit scheme in 2000, over £33billion has been claimed by UK businesses in tax relief for eligible costs. In July 2020, the Government published their R&D roadmap which pledged to increase public investment in R&D to £22bn per year by 2025, providing a clear commitment to support businesses out of COVID.
It still surprises us how many businesses still don’t think they are eligible when in fact they are. In this blog we set out a brief summary of who is eligible, what the tax credit scheme is and how you can access the tax credits.
Are you eligible?
All sectors of the economy are within scope so anyone from food producers to engineers or software developers may be conducting eligible research and development work.
You must be conducting research and development which intends to provide a worldwide advance in science or technology.
The project should provide innovation and technical advancement, the outcome should be uncertain and as such the project would be iterative and include stages of testing and review.
The staff involved should have the relevant training and expertise to complete the research and development activities.
What are the HMRC Schemes and which one applies to me?
There are two main R&D tax credit schemes in the UK: the SME scheme and the RDEC (R&D Expenditure Credit) scheme. The definition of eligible work is the same but the key difference between the two schemes is which costs are allowable and the amount of benefit to the company.
1. SME scheme:
The entity must be a limited company subject to Corporation Tax (i.e. not an LLP or sole trader);
The entity must be an SME and have <500 staff (FTE), turnover of <€100m or a Balance Sheet total <€86m.
Companies eligible for the SME scheme can claim up to 130% of eligible costs as a credit against their corporation tax liability or loss making entities can receive up to 14.5% of eligible costs as a cash payment.
2. RDEC scheme:
The entity must be a limited company subject to Corporation Tax (i.e. not an LLP or sole trader);
The entity would have >500 staff (FTE), turnover of >€100m or a Balance Sheet total >€86m.
Companies that fall within the scope of the RDEC scheme can benefit from a tax credit of 11-13% before tax.
Note: external investors, connected companies and partner companies can impact whether a company meets the definition of SME for R&D tax credits.
What are the eligible costs that I can include?
A broad range of costs are eligible to be included:
Staff salary and on-costs where they are working directly on the R&D project.
Up to 65% of subcontractor costs (SME).
Costs relating to software used in the project.
Costs of clinical trials.
Raw materials and consumables.
What is the process and timescale?
R&D tax credits are claimed through the company’s corporation tax return so you can go back up to two years and claim retrospectively for eligible projects. Eligible costs are included in the tax return which is submitted to HMRC with a report which describes the nature of the project and how it meets the eligibility criteria.
At GrowthBuilders we have worked with many companies to help them access the R&D tax credits for which they are eligible. If you think you meet the above criteria, get in touch today to find out how we can help you assess your project and make a claim!