What are R&D Tax Credits?

What is the R&D tax credit scheme?

The HMRC R&D tax credit scheme was introduced in 2001, rewarding UK businesses for investing time and money into innovative projects. Through the scheme, UK SMEs can reclaim up to 33% of their R&D costs for two previous financial years. While the number of claims by SMEs has been increasing (with over 25,000 claims in 2016-2017 alone), many qualifying UK SMEs are currently not making use of the scheme. This is due to either a lack awareness of the scheme or a misunderstanding of what “R&D” entails. If your business is not yet claiming tax credits, you could be missing out on a substantial rebate.

What is R&D, and do I qualify?

In terms of what qualifies as Research and Development, HMRC’s definition is broad, and encompasses many types of projects. According to the guidelines, R&D takes place when “a project seeks to achieve an advance in overall knowledge or capability in a field of science or technology”. Below are a few questions that can help you figure out whether your business qualifies for the R&D tax credit scheme:

  • Does your business create or make products that are new or are improvements on products that are currently on the market?
  • Has your business ever had to scrap a development project because you’ve reached a dead end?
  • Does your business employ a developer or an engineer, either in-house, remotely, or as a contractor?

If you’ve answered yes to one or more of these questions, your business likely qualifies for R&D tax credits. Your R&D projects do not need to have been successful, failure is very much a part of the R&D process. If your business attempted to resolve technical uncertainties and invested in creation and innovation, you will likely qualify to reclaim a portion of your development costs.

What costs can I claim for?

Your business can claim for a number of costs relating to your R&D expenditure:
• Salaries of staff involved in R&D projects (proportioned for the amount of time spent focused on R&D projects).
• Expenditure on subcontracted work or externally provided workers.
• Expenditure on consumables (utilities, materials and software) related to your R&D projects.

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