R&D Tax Credits

Fuelling innovation & powering business growth

What are R&D Tax Credits?

R&D Tax Credits are a Government incentive designed to support investment in R&D by enabling companies seeking to make a scientific or technological advance in their field to recover up to 33% of costs invested in innovation and advances in product, service, process, materials and software development.

They work by either reducing your Corporation Tax (CT) liability or, if you are loss-making for taxation purposes, through the receipt of a tax credit cash payment. You can claim for up to two historic accounting periods and for every forward year where you undertake compliant activity.

R&D can take place within any industry and any sector. Furthermore, company size and profitability do not prevent your right to make a claim and project success is not a fundamental requirement.

Administered by HMRC, the benefits are usually paid out on compliant claims within a month of submission.

ACTIVITIES WHICH QUALIFY FOR R&D TAX RELIEF

Qualifying R&D activities must form part of a project which seeks to achieve an advance in the overall knowledge or capability
in a field of science or technology, through the resolution of scientific or technological uncertainties.

They typically encompass ………

New product/service
development
Appreciable improvements to existing
products,services and/or processes
Software, IT
and system development
Development of alternate /
substitute raw materials

Our team of R&D specialists work with your Project Leads to understand the work undertaken so that we can advise upon:

ELIGIBLE R&D EXPENDITURE

 Your project may research or develop a new process, product or service or simply improve an existing one and therefore the scope
of qualifying R&D expenditure is very broad and can apply to many industries and sectors.   

Staff costs
Externally Provided
Workers
Subcontractors
Consumables
Software Licenses
Utilities

For employed staff involved in any R&D project, a proportion of the following costs can be reclaimed, based upon the amount of time each individual spent working on the project:

  • Gross wages and employers NI (incl. bonuses)
  • Pension contributions
  • Reimbursed expenses

This involvement may be either direct (e.g. working directly on activities to overcome uncertainty) or indirect (e.g. providing support to the R&D function such as admin, finance, security etc)

Externally Provided Workers (EPW’s) are temporary staff acquired via an external staff provider who work under the direct control and supervision of the claimant company. A maximum of 65% of these costs can be included in the R&D claim, although this cap may be exceeded where the claimant and the external staff provider are connected.

Third Party Subcontractors are often used where the claimant lacks either the resource or expertise to undertake a specific project activity in-house. As for EPW’s, a maximum of 65% of associated costs can be reclaimed, although this cap may be exceeded where the claimant and the subcontractor are connected.

Companies can reclaim costs of items used up consumed, transformed or scrapped during the R&D process, for example raw materials used to make prototypes, providing as they are of no further use/value afterwards i.e. they are not sold on (even at a loss) or were originally provided free-of-charge by the customer.

The cost of software licences can be included when used directly in R&D activities, although where they are also used for non-R&D work, a suitable apportionment of the full cost must be made

A reasonable apportionment of gas, electricity and water costs may be reclaimed (usually in line with the level of staffing engaged in R&D activity) although Rates and Rent costs do not qualify.

WHAT IS IT WORTH?

SME SCHEME

For companies with fewer than 500 staff and either no more than
€100 million turnover or €86 million gross assets.

Up to 33% of costs incurred

LARGE COMPANY (RDEC) SCHEME

For companies with 500 staff (or more) and either more than
€100 million turnover or €86 million gross assets.

More than 10% of costs incurred

The amount you receive depends not only upon the level of qualifying activity, the amount of cost incurred and the company tax profile but also on the size of your company, as this will determine whether your claim can be made under the SME or the Research & Development Expenditure Credit (RDEC) legislations. Additional factors, such as the receipt of grants and subsidies or acting as a subcontractor for a larger company, may also restrict an SME from accessing benefit from the SME incentive, leading you to make a claim under the RDEC scheme.

Capital expenditure is generally excluded from both legislations, unless elements of qualifying expenditure have been capitalised on the Balance Sheet as an ‘Intangible Fixed Asset’. 

Innovation Tax help companies of all sizes and across all sectors receive the full credit they are entitled to.

AVERAGE CLAIM VALUE BY SECTOR

These industry sectors yield a large number of R&D scheme claims* .
Here you can learn about the broad range of scheme qualifying activities regularly undertaken in each sector.
*HMRC avg. claim values. (HMRC Tax Credits 2020 Report)

Manufacturing: Avg. claim £105K

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Engineering: Avg. claim £107K

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Software: Avg. claim £70K

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Construction: Avg. claim £67K

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Agriculture: Avg. claim £53K

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Food & Beverage: Avg. claim £52K

LEARN MORE

Already Claiming? Innovation Tax can still help

Many companies have been successful in making R&D Tax Credit claims in the past, securing valuable funding for their business.

At Innovation Tax, we’ve reviewed many historic claims for companies who have either used the services of an alternate provider, their own advisors or who have chosen to compile the claim themselves; in the majority of these cases, we have found specific areas of compliance have been underclaimed (or totally overlooked) and the benefit has therefore been missed in the previous two financial claim periods.

Our claim optimisation service ensures a thorough review and assessment is carried out by our experienced industry and taxation specialists to ensure the maximum relief is claimed. So whether it’s indirect activity, connected subcontractors or disposable gloves, Innovation Tax cut through the legislation to correctly identify every element of compliant expenditure that can, and should, form a part of a successful and robust claim.

Facing an HMRC enquiry? Our enquiry support service can assist you

If you have previously made a SME or RDEC claim and HMRC have come back to you with an ‘enquiry’ (known as a compliance check), Innovation Tax can step in to resolve the enquiry efficiently and effectively with an expert team comprised of technical and tax specialists, to ensure the best possible result for your business.

An HMRC enquiry can often take a considerable amount of time to resolve in order to satisfy / address the concerns raised, therefore it’s important for a company to seek advice from a credible R&D specialist. HMRC are continually increasing their resource in this niche area of taxation to ensure claims made are compliant, so further compliance checks are anticipated.

FUELLING INNOVATION AND POWERING BUSINESS GROWTH

HMRC R&D Tax Credits 2020 Report

£5.8 Billion
given back to businesses

Over £330K
the average RDEC claim 

Over £57K
the average SME claim 

Over 62,000
 claims made

R&D Claim Calculator

What is your headcount?
What is the financial position of your company?
What is your estimated spend on R&D per year?
£25,000 £500,000

We estimate you could receive up to

£6,200

as cash repayment

, Research and Development Tax Credits, Innovation Tax

Start the conversation

To ensure you are receiving the Government funding you are entitled to, speak to Innovation Tax today.

Contact us now for a free consultation.