R&D tax credits are designed to support businesses that work on innovative projects across all sectors. They’re intended to encourage innovation and they can provide a valuable cash injection for business owners to reinvest in their businesses.
We come across many businesses that don’t realise they qualify for R&D tax credits, or they’re not claiming their full entitlement. R&D tax credits are only available for limited companies. If you’re claiming R&D tax credits, you must be able to demonstrate:
Rather than stating the product, process or functionality being developed, consider what scientific or technological advance is being sought. This focuses attention on the project’s aim for an advance. If your company is taking a risk by innovating, improving, or developing a process, product, or service, then it could qualify.
If you can show that your project goes beyond applying existing technologies, you could qualify. Remember even if the scientific uncertainties weren’t overcome, it can still mean that the work to address the uncertainties can still qualify for R&D tax credits.
The project must contain a level of technological or scientific uncertainty for a competent professional in your industry or business. If you or your team faced questions that left you all working hard to find a solution, that’s a good indication that qualifying R&D activities were taking place.
Direct and externally provided staff, subcontracted R&D, consumables, software, trials, prototyping and independent research costs may all qualify for R&D tax relief. Here’s some more detail:
Your company can claim for salaries, wages, class 1 NIC and pension fund contributions for staff directly and actively engaged in the R&D project.
This covers employees who undertake ‘hands-on’ R&D work and the proportion of time spent by any managers or supervisors specifically directing such employees in those activities.
Staff costs for clerical admin staff qualify in some instances where they are indirectly contributing to an R&D project.
These are the costs paid to an external agency or personal service company for individuals who are directly and actively engaged in the R&D project — these are not employees or subcontractors, but people working under the direction, supervision and control of your company who are used to augment staff headcount.
These costs are subject to a restriction of 65% of total payments made, however, special rules apply if the company and staff provider are connected or elect to be connected.
Payments made to third-party companies to carry out R&D activity for you. The subcontractors can be based anywhere in the world, so long as the payment is reflected in your accounts. As with externally provided worker costs, payments to subcontractors are subject to a restriction of 65%, however, special rules apply if the company and staff provider are connected or elect to be connected.
You may claim for the cost of software that is directly employed in the R&D activity. Where software is only partly employed in direct R&D, an appropriate apportionment should be made.
In general, where two companies collaborate on an R&D project, each can claim relief on the qualifying costs they have incurred. Collaborative arrangements are governed by their contracts and you should seek advice if you’re unclear which company is entitled to the relief.
Our clients are diverse. They can be in any industry from Aerospace to Banking, Construction, and all the way through to Zoology. Their businesses may be worlds apart, but they all share one thing in common – the need for friendly and effective tax advice.Industries we work with