The Research and Development (R&D) Tax Relief Scheme is an initiative by the UK Government to reward incentives to companies towards their investment in various innovative and developmental projects. This serves as a valuable source of cash for the R&D of companies which in turn is beneficial for their growth. The goal of such a scheme is to encourage greater innovation of new or advanced products, services or processes within the economy.
This programme is specifically designed for small to medium-sized companies (SMEs), large companies and those who have spent heavily on the development of innovative products, services or devices. In order to qualify for the relief, these companies should invest in innovative projects that prove to be significant in improving the existing scenario of technology, software, techniques or formulas.
1) Eligibility For R&D Tax Relief Schemes
The scheme is applicable for every sector from food industry to chemical engineering, digital development to construction, oil and gas to mechanical contracting, cyber security to telecommunications and others. Regardless of the size and sector, if you are a UK based business subject to Corporation Tax and if your main business activity involves risk and resolution of any scientific or technological uncertainty, then you stand qualified for the R&D tax credit.
Categories of R&D Tax Relief Schemes
SME R&D Relief – It can be claimed by an SME if they have
- less than 500 employees,
- A turnover of less than 100 million euros or gross assets of less than 86 million euros.
Under this scheme, SMEs can cut down their tax liabilities. In case they are incurring losses, a credit option is also available to them. In this scheme, the claim has to be made within 2 years from the end of the accounting period of the expense/claim.
2) The Research and Development Expenditure Credit (RDEC)
It can be claimed by large companies if they have
- More than 500 staff,
- A turnover of more than 100 million euros or have 86 million euros gross assets.
- Those that have been subcontracted to conduct R&Dby another large company.
SMEs that are subcontracted to carry out R&D work for a large company can also claim it.
While submitting claims for the RDEC scheme, companies have to provide documents that will highlight
- The methodology for making the claim
- The cost and analysis of how they have been derived
- The activities within the business that qualify for the claim
3) Research & Development Capital Allowance (RDA)
This scheme allows companies to also benefit from the expenditure, i.e., the capital expenditure associated with R&D. It provides a 100% tax deduction for capital expenditure in the year the costs were incurred, thereby improving the cash flow significantly offering relief for longer periods. This is usually available for both SMEs and large companies.
Which Costs Qualify For R&D Tax Credits?
- Wages, salaries, Employers’ contributions to National Insurance,
- Cost of the workforce used from other companies and that of independent contractors
- Cost of managing facilities for continuing R&D (e.g. R&D environment)
- Materials, power, software licenses, fuel, etc. used directly for the purpose of R&D
- Payments made to any 3rd party or any large organization related to R&D
How Beneficial is R&D Tax Credit For Your Company?
R&D tax credits are calculated based on your total R&D spend. In order to do so, you have to know the qualifying expenditure and calculate your enhanced expenditure. This is not as easy as it sounds. But the ability to identify all R&D to maximise the claim is key to realise the full potential of these incentives and their far-reaching benefits. It goes a long way in helping innovative companies to scale up, in short, it can transform your business.
Research and Development Tax Relief Claims need proper documentation and compliance along with completeness and credibility to support them.
At CoreAdviz, we have a team of highly qualified and experienced tax advisers who help in preparing robust R&D tax credit claims that includes all your qualifying R&D activities and costs. We work closely with start-ups to SMEs and large companies to file supportable tax relief claims that stand up to the HMRC scrutiny. Our process and methodology are fast-paced to save you time and have a negligible impact on your day-to-day business operations.
Managing business and taxes together could be quite challenging for both large and small to medium-size businesses. The application of the scheme involves much technical knowledge and time besides producing high quality technological and scientific reports. We provide our clients with a digital platform for all their tax-related records and claims that saves time and manual effort.
To avoid the complexity of making R&D claims and to focus better on your business, you can take the help of an accounting firm in London. At CoreAdviz, we help our clients to get optimum value from their R&D expenditure credit against their investment. Find out more about our accounting and tax-related services.