Navigating R&D Tax Credits for UK Businesses

Are you a UK business owner? Are you always looking for possibilities to increase your profitability? You can do this by improving your existing product or streamlining your business operations. To enhance your product, you need to leverage technology. What else can be better than conducting research and scientific development to achieve this goal?

Yes, you may have overlooked the same because of the expenses. However, the UK government offers some financial assistance to businesses for this cause. This financial assistance is known as the R&D tax credit, initially introduced for SMEs in 2000. After two years, these tax credits were extended to benefit large companies. Let’s know more about the R&D tax credits for UK businesses.

Who Can Claim R&D Tax Credits?

You may be thinking that only small and medium-sized companies must be eligible to claim these tax credits, but this is not at all true. Even if you run a large company making tireless efforts to make advancements in science and technology, you can be eligible to claim. However, your company must be chargeable to UK corporation tax to qualify for this tax credit. Now, in order to avail of these, you must make sure to know that certain businesses are not eligible to make any claim for these tax credits.

Activities for Which You Can Claim R&D Tax Credits

Businesses can claim R&D tax credits for activities that aim to resolve scientific or technological uncertainties. These include the following activities:

Direct R&D Work:

• Development or improvement of products, services or processes
• Conducting experiments, testing prototypes, or building models
• Preparing R&D findings report and clerical activities
• Problem-solving and maintenance of R&D equipment

Support Activities:

• Recruiting staff for R&D projects
• Specialist tasks like cleaning R&D equipment
• Project management and administrative activities for R&D

Costs for Which You Can Claim

Businesses can also claim R&D tax credits for staff costs that are related to the R&D activities. These staff costs may include salaries, bonuses, pensions, and National Insurance contributions. This applies to both direct contributors and those performing supporting tasks. If some of your staff members work 90% of their time on R&D, you can claim 90% of their salary. These staff members are direct contributors to your R&D project.

Now, as said earlier, some of your staff members can be engaged in supporting activities for your R&D project, such as HR screening and recruiting a specific person for this project or a specialist cleaning staff. In such a case, a claim can be made for the cost of the time spent on activities in supporting the R&D work.

What is a merged R&D scheme?

Earlier, there were separate R&D tax credits-one for small and medium-sized enterprises (SMEs) and the other for large companies. These tax credits were quite generous for SMEs, but because of multiple reported incidents of misuse of these tax credits. Both are now merged into a single R&D scheme. Here, the R&D expenditure credit is offered at 20%. The rates are not the same for ring-fenced trades like companies in the oil and gas industry. Now, you may run an SME which is not R&D-intensive. However, it has a qualifying R&D expenditure and is profitable. In such a case, your company can claim relief under this scheme.

It does not matter whether your business is engaged in innovation in manufacturing or food production; you must seriously consider R&D tax credits. These not only help in reducing the tax burden but also foster long-term growth. To avail these R&D tax credits without any stress, it is best to consult a tax advisor or an experienced UK accountant.