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Frequently asked questions
How do R&D tax credits work?R&D tax credits are a type of tax incentive designed to stimulate innovation in the UK by encouraging companies to invest in the development of new products and services. If you meet the qualifying criteria, you have the opportunity to recover a portion of the expenses incurred in R&D activities. If your claim is successful, you may receive either a cash payment, a reduction in your tax liability, or a refund for any excess tax paid. There are two R&D schemes available: one for smaller companies with fewer than 500 employees (SME) and another for larger companies known as the Research and Development Expenditure Credit (RDEC) scheme. Our R&D tax credit calculator provides an estimate of the tax relief you can potentially claim under the SME scheme. This scheme primarily caters to startups and offers a higher rate of tax relief. For more detailed information about the distinctions between the SME and RDEC schemes, we recommend referring to our comprehensive guide on R&D tax credits.
How much can I claim through R&D Tax Credits?The amount you can claim through R&D Tax Credits varies depending on several factors. For small and medium-sized enterprises (SMEs) that are making a loss, the claim can be up to 33% of their eligible R&D expenditure. For profitable SMEs, the claim typically ranges around 25% of their total R&D spend. Larger companies, under the Research and Development Expenditure Credit (RDEC) scheme, can claim just over 10% of their R&D spend. It's important to note that the specific percentages and rates may be subject to change based on government policies and legislation. However, R&D Tax Credits offer substantial financial incentives and can provide a significant boost to companies' cash flow, allowing them to reinvest in further research and development efforts.
What defines an R&D project?In order to be eligible for R&D tax relief, it is not necessary to create an entirely new product or process. Many of the claims we come across involve a significant improvement to existing technology. The key requirement is to demonstrate that this improvement was not a straightforward task and that you encountered "technological uncertainty" while attempting to achieve it. To meet the criteria set by HMRC (His Majesty's Revenue and Customs) for a qualifying R&D project, you must demonstrate the following: You pursued an advancement in a specific field of science or technology. You encountered scientific or technological uncertainty that needed to be overcome. The solution to this uncertainty was not readily deducible or obvious to a competent professional working in a relevant field of science or technology.
Is my project eligible for R&D Tax Credits if it was unsuccessful?Yes, even if your project did not achieve the desired outcome, it can still be eligible for R&D Tax Credits. The emphasis is on the efforts made, the technological challenges faced, and the lessons learned throughout the R&D process. Whether the project resulted in a successful innovation or not, as long as it meets the qualifying criteria, such as seeking advancements and overcoming uncertainties, it can be considered for R&D Tax Credits. This recognition of unsuccessful projects is important because it encourages companies to take risks, push boundaries, and learn from their experiences, which ultimately contributes to overall innovation and technological progress.
Can I claim R&D Tax Credits for subcontracted R&D work?Yes, it is possible to claim R&D Tax Credits for eligible subcontracted R&D costs. This means that if you engage another company or individual to perform R&D activities on your behalf, the costs associated with that subcontracted work can be included in your claim. However, it's crucial to ensure that the subcontracted R&D work meets the qualifying criteria and is directly related to your own R&D project. Maintaining proper documentation and agreements with subcontractors is essential to support your claim and demonstrate the eligibility of the subcontracted costs. Collaborations with external parties can often enhance the scope and expertise of R&D projects, and the inclusion of subcontracted R&D costs in your claim allows you to maximize the benefits of R&D Tax Credits while acknowledging the contributions of external partners.
How do I claim R&D tax credits and is there a limit?In order to receive R&D tax relief, you are required to submit an R&D claim to HMRC, providing a breakdown of the expenditures incurred on R&D projects. This claim should be submitted concurrently with your Corporation Tax return. Additionally, it is possible to claim R&D tax relief for the preceding two accounting periods by filing an amended tax return. For instance, if your accounting year ends on March 31, 2022, you have until March 31, 2024, to submit your claim for those periods.
What expenses can I claim back on an R&D tax claim?For a comprehensive list of qualifying expenses, please refer to our comprehensive guide to R&D which is free to download. However, here is a general overview of the types of expenses that can typically be claimed: 1. Staff costs: Gross salaries of employees directly engaged in R&D activities. Employer National Insurance (NI) contributions related to R&D staff. Employer pension contributions for R&D staff. Bonuses paid to R&D staff within nine months of the financial year end. Reimbursed expenses associated with the R&D project. 2. Subcontractor and third-party costs: Costs incurred for outsourcing R&D work to external companies, individuals, or organisations. Externally provided workers, including agency workers who contributed to the R&D effort. 3. Consumable items: Costs of raw materials used or transformed during the R&D process. Note that these materials cannot be sold or form part of the final sellable product. Utilities costs, such as water, gas, and electricity, directly related to the R&D activities. 4. Software costs: License costs for software used in R&D activities, such as CAD (Computer-Aided Design), CAM (Computer-Aided Manufacturing), or GitHub. Differentiating between qualifying and non-qualifying costs can sometimes be challenging. If you choose to work with RDI Solutions, our team will assist you in reviewing all your expenses and ensuring the accuracy of your claim.
Can I claim R&D Tax Credits for routine or everyday activities?No, routine or everyday activities that do not involve advancing science or technology are generally not eligible for R&D Tax Credits. The qualifying criteria prioritises activities that seek technological or scientific advancements and involve overcoming uncertainties. Routine activities, such as regular product maintenance, incremental improvements, or routine data collection, are excluded from the scope of R&D Tax Credits. It's important to distinguish between routine activities and activities that genuinely involve innovation, technical challenges, and scientific or technological advancements.
How do I submit an R&D Tax Credit claim to HMRC?To submit an R&D Tax Credit claim to HMRC, you need to include the details and supporting information in your Corporation Tax return. This typically involves completing the relevant sections and forms provided by HMRC that specifically address R&D Tax Credits. It's important to provide accurate and comprehensive information, including eligible R&D expenditures, supporting documentation, and any required narratives or explanations to substantiate the claim. It's typically recommended to work with experienced professionals or tax specialists like RDI Solutions, whereby we can assist you in preparing and submitting a well-documented R&D Tax Credit claim to help you maximise your tax refund whilst remaining diligent and compliant in order to to keep HMRC happy and satisfied.
Can I claim R&D Tax Credits if my company is making a loss?Yes, loss-making companies can claim R&D Tax Credits and potentially receive cash credits or carry forward losses to offset future tax liabilities. R&D Tax Credits can be a valuable tool for loss-making companies to enhance their cash flow and support ongoing research and development efforts. The tax credits can be used to generate immediate cash refunds or be carried forward to future profitable years to offset tax liabilities. This allows loss-making companies to benefit from the financial incentives provided by R&D Tax Credits and encourages continued investment in innovation and technological advancement.
What evidence should I keep to support my R&D Tax Credit claim?Maintaining proper records and documentation is crucial to support your R&D Tax Credit claim. The evidence should demonstrate the eligibility of your R&D activities, the nature of the uncertainties faced, the efforts made to overcome them, and the associated expenditures. Documentation can include project plans, technical documentation, timesheets, financial records, invoices, contracts or agreements, lab notebooks, test results, prototypes, and any other relevant supporting materials. Keeping detailed and accurate records not only substantiates your claim but also serves as a valuable resource for future audits.
Can I claim R&D Tax Credits if I have received other grants or funding?Receiving grants or funding does not necessarily disqualify you from claiming R&D Tax Credits. However, it's important to consider the impact of other grants or funding on the eligible expenditure and relief calculation for R&D Tax Credits. The guidelines may vary depending on the specific grant or funding program. In some cases, certain expenses covered by grants or funding may be excluded from the eligible expenditure for R&D Tax Credits. It's crucial to carefully review the terms and conditions of the grants or funding received to understand any restrictions or requirements related to claiming R&D Tax Credits.
Is my business eligible for R&D tax credits?To determine if your business is eligible for R&D tax credits in the UK, several factors need to be considered. The primary criterion is whether your company has engaged in qualifying Research and Development activities. These activities typically involve seeking to achieve scientific or technological advancements through the resolution of technical uncertainties. To be eligible, your business should be a UK limited company subject to UK Corporation Tax. It should have incurred expenditure on R&D projects that align with the guidelines provided by HM Revenue and Customs (HMRC). It's important to note that eligibility is not limited to high-tech or scientific industries. R&D tax credits are available to a wide range of sectors, including manufacturing, software development, engineering, and more. To assess your eligibility and make a claim, you will need to demonstrate the nature of your R&D activities, the challenges faced, and the innovative solutions developed. Working with an R&D tax specialist such as RDI Solutions can be beneficial in understanding the specific criteria and maximising your claim. Ultimately, it is recommended to consult with HMRC guidelines or seek professional advice to determine if your business meets the eligibility requirements for R&D tax credits.
Here are some questions you could ask yourself about how Stamp Duty refunds work. If there’s anything we haven’t covered here, check our FAQ page.
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