What is Research & Development, or R&D?
R&D refers to innovative activity that creates something new or enhances something that already exists. The dictionary definition can be quite broad, but for tax purposes the key criteria to observe are “uncertainty” and “advancement”. What does this mean exactly? Well, it can cover a broad range of activities such as:
- Website development
- Developing prototypes
- Technical analysis and testing
- Developing manufacturing or services processes
The types of cost that can be attributed to these activities include among others:
- Management costs including Directors salaries
- Employee wages and salaries
- Subcontractor costs
- Software licenses
- Supporting software
- Hardware costs
What are R&D Tax Credits?
The Government has provided very generous incentives to businesses that engage in innovation and development, and rightly so, as innovation benefits the economy and society.
The key incentive is the “tax credit” or tax relief, and the Government has allocated billions of pounds and seven HMRC offices dedicated to this initiative. Much of these funds for tax credits are not yet claimed, which is unsurprising as the process for determining qualifying expenditure and claiming tax credits is quite complex.
For qualifying expenditure on R&D, businesses can claim the following tax relief (credits):
- Up to 230% deduction of qualifying R&D expenditure against revenue, which effectively reduces taxable profit and therefore tax payable. This is equivalent to allowing £2.30 expenditure in your profit and loss for every £1 spent. This is known “enhanced” expenditure.
- For loss making companies, a cash refund from HMRC of up to £33.35 on every £100 spent.
Who Qualifies for R&D Tax Credits?
All UK incorporated businesses qualify for R&D tax relief or tax credits. Claims can also be made for earlier years.
How to Claim R&D Tax Credits
We have a streamlined and efficient claims process for R&D. To find out if you are entitled to claim tax credits simply contact us using the adjacent form or call our office on 020 7153 6580.
The Claims Process
Our process is designed to be simple and efficient and does not require us to replace your regular accountant. Here is how we work:
Step 1: Meeting or call to discuss the potential for claiming R&D tax credits. At this early stage we will look into your businesses activities and look to determine the likelihood of making a successful claim. You are not required to provide any detailed or sensitive material at this stage.
Step 2: Once we determine a good likelihood of making a successful claim, we carry out a more detailed analysis of your business activity and expenditure. We will aim to determine the value of the claim and prepare the claim for submission to HMRC at this stage.
Step 3: We discuss the claim submission with you, and provided you are happy with it, we submit to HMRC’s dedicated R&D team. HMRC may have queries on the claim, which we will fully handle on your behalf.
Step 4: HMRC typically approve claims in four to six weeks, at which point our work is complete.
Arrange a FREE consultation
For a free consultation and an initial analysis of the potential benefit available to your company, get in touch.