Research & Development Tax Credit Questions

R&D tax credits are basically a government incentive that is designed to reward UK companies for investing in innovation. 

Companies that invest time and money into projects that can make an advance in science or technology can be rewarded with R&D tax credits – either in the form of deducting up to 130% of their qualifying costs from their yearly profile or claim up to 13% of their qualifying R&D expenditure.

Both small companies and larger companies are eligible, but there are more requirements when it comes to what projects count as R&D – for example, that must relate to a company’s trade or had to overcome uncertainty. 

You can claim on costs such as staff costs (salaries, wages, pension fund contributions), subcontractor costs and consumable items such as materials and utilities.

R&D tax credits refer to Research and Development tax credits – which is a government incentive designs to reward companies in the UK for investing in innovation, or projects that can provide an advance in science and technology. 

Companies can benefit from up to 130% of their qualifying cost from their yearly profile or 13% of their qualifying R&D expenditure. 

This can be for costs relating to staff costs such as salaries or pension fund contributions, or consumable items like materials and utilities. 

Small businesses and large businesses can apply, but there are two different types of tax credit based on the company size.

Research and development tax credit – also known as R&D tax credits – is a government scheme put in place to incentivise companies and businesses in the UK to invest in innovation more. 

Simply put: if you’re a company working on a project that can provide an advance in science and technology (and you can prove this), then you may be eligible for some tax credit.

Companies can either deduct up to 130% of their qualifying costs from their yearly profile or claim up to 13% of their qualifying R&D expenditure. Qualifying R&D expenditure can be things like salaries or pension fund contributions or even materials and utilities.

Even better – it’s not just for large businesses. Small businesses can apply to, but the scheme varies slightly depending on company size.

Research and Development tax reliefs (also known as R&D tax credits) are a government incentive designed to reward companies in the UK for investing in innovation.

They basically work by refunding companies some percentage of their eligible expenditure. So if, as a business, you’re developing new products, processes or services – or enhancing existing ones – you’ll be eligible for R&D tax relief.

To qualify, you must be a limited company within the UK that is subject to Corporation Tax, have carried out qualifying research and development activities and must have spent money on these projects.

There are also different types of R&D relief, based on the size of your company and whether the project has been subcontracted to you or not. 

Small and medium-sized enterprises can apply for SME R&D relief if they have less than 500 staff and a turnover of under 100 million euros or a balance sheet total under 86 million euros.
Larger companies can apply for Research and Development Expenditure Credit (RDEC).

SME R&D relief allows companies to:

• Deduct an extra 130% of their qualifying costs from their yearly profile – as well as the normal 100% dedication
• Claim a tax credit if the credit is loss-making, worth up to 14.5% of the surrenderable loss

The Research and Development Expenditure Credit is a tax credit that allows companies to claim credit at 13% of their qualifying R&D expenditure and is taxable. 

The exact return depends on the qualifying R&D activities and costs – however, there are online calculators where you can estimate the value of your R&D tax credit.

You can make a claim for R&D relief up to 2 years after the end of the accounting period it relates to. First, you must work out the period you can apply relief for.

You can claim costs on the project from the date you started working on it until the date the project is stopped or completed.

Your R&D may restart if, for example, you find another scientific or technological uncertainty after you have started producing the project. In this case, you can claim for another period of R&D while you try to resolve it.

To qualify for R&D tax credits, there are a few things to keep in mind such as company size and turnover. But when it comes to what projects you are able to claim R&D tax relief on, it’s a little more complicated.

Projects that count as R&D must be part of a specific project to make an advance in science or technology. It cannot be an advance within a social science – like economics – or a theoretical field such as pure maths.

The project must also relate to your company’s trade and you must be able 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

The project may research or develop a new process, product or service – or improve on an existing one.

To claim R&D tax credits, you must be able to prove that you’re working on a project that can provide an advance in science and technology.

You are also able to apply for up to two years after the project has been completed.
The projects must relate to your company’s trade and you must be able to explain how the 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
• If you can prove the above to qualify, you can get credit by entering your expenditure into a full Company Tax Return form (CT600).

You can also visit the gov.uk website for a step-by-step guide on how to check if you’re eligible, apply and claim.

R&D tax credits are a great scheme from the government to help reward companies investing in innovation – but what projects are actually eligible can be quite confusing to work out.

For example, a project must relate to your company’s trade and you must be able to have proof on a number of different points such as how the project tried to overcome uncertainty or could not easily be worked out by a professional in the field.

Furthermore, it cannot be an advance within a social science – like economics – or a theoretical field – such as pure maths. It must be within the science or technology fields.

Software development is considered as R&D, depending on the individual project. 

For example, things like AI and machine learning, cloud computing or augmented reality are all qualifying software.

Any project that can prove it can – or tried to – provide an advance in science and technology is eligible for R&D tax credits. 

There are some further points to keep in mind, however. The project must be related to your company trade and must be within the science and technology fields.

An easy way to work out if your project qualifies is to see if you are able to explain how the 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

If you can – you’re eligible.

If you are applying for R&D tax credit, then you need to be able to support your claim. You will need to submit a short summary that explains how your project:

• Meets the definition of R&D by the government
• Looked for an advance in science or technology and aimed to achieve this advance
• Had to overcome scientific or technological uncertainty, and how you overcame this uncertainty
• Could not easily be worked out by a professional in the field

You’ll also need the start and end dates of the accounting period related to the R&D activity, your unique taxpayer reference number and details of your qualifying R&D costs.

This can all be submitted online via the HMRC website but we do recommend getting your accountant (or hiring an accountant) to help you – as it requires a lot of preparation and can be quite comprehensive and time-consuming.