Understanding R&D Tax Credits – FAQs
The UK Government’s Industrial Strategy has committed to increase investment in research and development (R&D) in the UK to committing to a £39.8 billion R&D budget for 2022-2025 to help deliver the government’s Innovation Strategy and drive forward ambitions as a science superpower.
The allocations will help the government reach the goals set out in the Innovation Strategy. These investments will also help the UK reach its goal of spending 2.4% of GDP on research and development by 2027.
Despite the government’s stated desire to strengthen the UK’s position as a science superpower and innovation nation, the process of putting together and filing tax relief claims can be complex and time-consuming for those applying, leaving innovative businesses feeling powerless and unsure of where to start.
So we’ve put together a list of R&D Tax Credit FAQs to help.
How do R&D tax credits work in the UK?
R&D tax relief is a UK government programme that encourages companies to conduct research and development by lowering your corporation tax liabilities or providing a lump sum of cash. Currently you can get up to 33% of the money you spend on eligible R&D work back from the government through the scheme. R&D tax credits can be given in the form of cash, a reduction in your corporation tax bill, or a refund on taxes you’ve already paid. Or, sometimes, a mix of both.
How much are R&D tax credits worth in the UK?
R&D tax credits are a type of government support for businesses that conduct research and development (R&D) activities in the UK. The rate of relief is due to change for expenditure incurred from 1st April 2023. Currently SMEs typically recover 25% – 33% of qualifying R&D costs. Research and Development Expenditure Credit (RDEC)-eligible companies could get more than 10% of their R&D spending back for their last two financial periods.
Whether your business is profitable or not will determine how much R&D relief an SME will receive:
- R&D tax credits for profitable businesses lower your Corporation Tax bill. There is a 25% relief rate. Therefore, if your R&D expenditures totaled £100,000 last year, you could receive a £25,000 tax bill reduction.
- If your business is loss making, you will get your R&D tax credit in cash because you don’t owe any taxes. There is up to 33% relief. As an example, you could get a £33,000 cash credit if your R&D spend last year was £100,000.
What qualifies for R&D tax credits?
Eligibility is not restricted to activities conducted in laboratories or science-based research facilities. R&D Tax Credits can often be claimed in far broader areas and various businesses could be eligible for significant tax breaks and experience an increase in cash flow. Actually, R&D can occur in any industry. It is used in many different fields, including architecture, chemical engineering, construction and manufacturing, and renewable energy. Loss making companies can even claim back tax they haven’t paid in the first place.
What is the HMRC UK R&D tax credit?
Research & Development (R&D) tax credits are a form of financial support provided by the UK government to eligible businesses, in order to incentivise research and innovation within their respective industries. R&D tax credits are available to companies of all sizes, including those that are loss making, and can provide a rebate of up to 33.35% on any eligible expenditure for research and development activities. They are a valuable source of cash for businesses to invest in accelerating their R&D, hiring new staff and ultimately growing.
Who is eligible for R&D tax credits?
Science or technology must be involved in R&D projects, but HMRC’s definition is broad and includes investments in science and technology as well as IT systems, data, and cloud computing. A growing variety of companies engage in qualifying activity. Companies have had to step up their innovation to overcome constraints as a result of numerous events over the past few years, particularly COVID-19 and Brexit.
You can claim R&D tax relief if you’re a SME with:
- less than 500 staff
- a turnover of under €100 million or a balance sheet total under €86 million
External investors can affect your SME status. You may need to include connected and partner companies’ figures to determine if you’re a SME.
You can’t get SME R&D relief if the project gets notifiable state aid or if you’re hired by someone else to do the work. However, R&D Expenditure Credit (RDEC) may be available.
If you’re starting a new business or developing new processes and techniques to meet consumer demand in a growing market, you may qualify for R&D tax credits. Research and development tax credits can be claimed two years prior. This gives you time to organise your company and record tax-deductible activities and costs.
How are R&D tax credits paid?
The scheme you use to make a claim determines how you receive your R&D tax credit benefit. The financial position of your company is also important. It also depends to some extent on your preferences. It could be in the form of a cash payment, a Corporation Tax reduction, the carry forward or back of a loss, or a combination of these.
Why use Beavis Morgan for your R&D Tax claim?
Being a regulated practice, Beavis Morgan’s specialised R&D team is in a unique position to advise creative businesses on R&D tax credits. In addition, unlike many R&D consultancies, we can file Corporation Tax returns on your behalf. Our end-to-end claim service takes care of everything for you and makes sure that your benefit is maximised.
We focus on adding value and security to your R&D tax claim while taking up as little of your time as possible. Our top priority is to ensure that your claim meets the highest compliance standards, and we produce a strong technical and financial report that can withstand any HMRC scrutiny. With the Revenue ramping up their investigations, it is essential that you have a robust system in place for managing your R&D tax claims.
We understand that every business has different needs, so we offer tailored solutions that ensure our clients get the best out of their claim. For example, once you’ve received your first R&D tax credit, we’ll work with you in helping to keep your records updated, so that you’ll be ready for future claims.
The R&D tax reliefs can be extremely beneficial for those engaged in qualifying R&D, and Beavis Morgan can help your company maximise the benefits of the reliefs by:
- Determining your eligibility to qualify
- Creating a robust report for submission to HMRC
- Identifying and recording qualifying activity expenditure
- Being prepared for and managing an investigation by HMRC
Considering filing an R&D tax claim? First get in touch
We hope that by reading through our R&D Tax FAQs, you have a better understanding of the programme and a better awareness of the claims process.
At Beavis Morgan R&D, we are proud of our 100% success rate in achieving positive claims results for all of our clients. If you have any further questions about the scheme, we are here to help.
Contact Rebecca Heap via email: rebecca.heap@beavismorgan.com or Tel: 0207 549 2357