R&D Tax Credits: what are they all about and how could they benefit your business?

The R&D tax credit incentive is a valuable tax relief available to limited companies. They reward profitable companies with a significant corporation tax reduction or provide loss making companies with a sizeable cash payment. Companies can use the cash benefit in any way they choose – even to pay a dividend.

It is widely understood that a large percentage of companies which qualify for the relief do not make a claim. With the average claim value for a UK SME standing at £57,000, these companies miss out on the opportunity to reclaim substantial amounts of money each year.

Why do so many companies not claim R&D relief?

From our experience, the primary reason is associated to the understanding of the relief. Either:

• Companies do not realise that they qualify; or
• They are daunted by the R&D tax credit process

Both scenarios above can be resolved by speaking to industry professionals.

So how do I know if I qualify for R&D tax credits? 

The misconception of R&D tax credits can be related to people’s perception of the term ‘innovation.’ You do not need to be in bright white lab coats undertaking cutting edge research to make a claim. This is the biggest misconception surrounding R&D tax credits.

You could make a claim if your company has tried to achieve any of the following:

• Creating something new (for example, a new product, piece of software, process or service)
• Making appreciable improvements to existing products, software, processes or services
• Duplicating something already available in the marketplace (for example, duplicating a rival’s breakthrough where the knowledge of how they did it is a trade secret)

To survive in today’s marketplace, most companies need to continually undertake a range of different projects to stay competitive.  It is likely therefore that companies are already doing one or more of the above. The project doesn’t even need to be successful. Even if it failed you could still make a claim.

The R&D tax credit preparation process involves analyzing the work entailed in these projects and identifying technological or scientific challenges where solutions were not easily overcome. This forms the basis of your claim.

What R&D costs can I claim via tax credits?

There are a variety of costs that can be included in an R&D tax credit claim. These include:

• Expenditure on staff including gross salaries, employers NIC and employers pension contributions
• Expenditure on agency workers
• Expenditure on subcontracted R&D activities
• Expenditure on consumables and materials (including heat, light, power and water)
• Software

Unfortunately, there is a time limit associated to your claim. You have two years from the end of the accounting period in which the R&D activity took place to make a claim.

A specialist R&D tax credit consultancy will make the process of claiming simple and straight forward and we would always encourage companies to book a free no obligation chat with a qualified professional to ascertain whether a valid claim is available.

About Limestone Grey

This blog was developed by Limestone Grey.

LimestoneGrey are Chartered Tax Advisers that specialise exclusively in R&D tax credits, allowing them to have a thorough understanding of the tax legislation and HMRC practice. As a result, they are able to offer a service which helps to:

• Ease complexity
• Minimise your time and effort
• Minimise HMRC risk
• Maximise claim acceptance

Limestone Grey have delivered workshops at AberInnovation since 2018 and have been very supportive of our BioAccelerate investment-readiness programmes.