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R&D Tax Credits are a Government incentive aimed at supporting investment in R&D by enabling companies seeking a scientific or technological advance in their field to recover between 16% – 33% of the costs incurred in innovation and advances in product, service, process, materials and software development.
The benefit crystallises either as a reduction in Corporation Tax (CT) liability, a refund of CT already paid or, if you are loss-making for taxation purposes, through the receipt of a tax credit cash payment. It is possible to claim for one/two historic accounting period(s) (subject to Claim Notification requirements) and then for every future period in which you undertake compliant activity.
R&D may take place in a wide range of industries and sectors and your right to claim is not precluded by the size or profitability of your company; what’s more, the project doesn’t even need to result in a successful outcome to qualify for relief.
Administered by HMRC, the benefit on compliant claims is usually paid out within 1-2 months of submission.
Qualifying R&D activities must form part of a project which seeks to achieve an advance beyond the prevailing industry-recognised baseline in the overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainties.
They typically encompass
Your project may research or develop a new process, product or service (or simply improve an existing one) and therefore the scope of qualifying expenditure is very broad and can apply to many industries and sectors.
For employed staff, the following costs can be reclaimed based on an apportionment of their time spent undertaking compliant activity:
Staff involvement may be either direct (actively engaged in overcoming uncertainty) or indirect (by providing support to those engaged ‘directly’ e.g. procurement, finance, HR, security)
Temporary staff acquired and remunerated via an external staff provider but who work under the direct control and supervision of the claimant. A maximum of 65% of these costs can be included, excepting where the claimant and the external staff provider are connected.
Claimants can include costs of items ‘consumed’ – transformed or scrapped – in R&D activities providing they are of no further use / value afterwards e.g. raw materials used to make prototypes which were ultimately discarded, a reasonable apportionment of utility costs (gas. electricity, water)
Software licence costs can be included when used solely in R&D activity; where they are also used for routine (non-R&D) purposes, a suitable apportionment of the full cost must be applied
For AP beginning 1st April 2023, Cloud Computing (data storage, hardware facilities, operating systems and software platforms) and Data Licence costs can be included when used directly in R&D activities; where they are also used for (non-R&D) purposes, a suitable apportionment of the full cost must be applied
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’.
WHAT IS THE AVERAGE R&D TAX CREDIT CLAIM VALUE BY INDUSTRY 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
Manufacturing: Avg. claim £105K
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Engineering: Avg. claim £157K
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Software: Avg. claim £110K
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Construction: Avg. claim £74K
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Agriculture: Avg. claim £77K
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Food & Beverage: Avg. claim £52K
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Healthcare/BioTech: Avg. claim £157K
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Renewable Energy: Avg. claim £170K
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Transport/Logistics: Avg. claim £76K
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Many companies have made successful historic R&D Tax Credit claims, securing valuable funding for their business.
At Innovation Tax, we’ve reviewed many historic claims made using either the services of another provider or their own accountant indeed, some have chosen to compile the claim themselves. In many cases, we found specific areas of compliance being underclaimed (or totally overlooked), hence benefit has been missed in these previous claim periods.
Our claim optimisation service ensures a thorough review and assessment by our experienced industry and taxation specialists to ensure relief is maximised. So whether it’s indirect activity, connected subcontractors or disposable gloves, Innovation Tax cut through the legislation to correctly identify each element of compliant expenditure that can, and should, form a part of a successful and robust claim.
If you’ve previously made a claim on which HMRC have opened an ‘enquiry’ (or ‘compliance check’), Innovation Tax can help 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.
It often takes considerable time to satisfy and address the concerns raised by an ‘enquiry’ and it’s therefore essential to seek advice from a credible specialist such as Innovation Tax, as HMRC continue to increase their resources in this niche taxation area to ensure claims are compliant.
Did you know? In the tax year 2022 to 2023, the UK saw significant growth in R&D tax credit claims, reflecting the increasing innovation within the technology and software sectors. Companies leveraged these credits to offset development costs and drive advancements.
Since August 2023, it has been mandatory to submit an Additional Information Form (AIF) before including the R&D claim in the CT600. At Innovation Tax, we handle the submission of the AIF on behalf of our clients.
The AIF is a required document designed to ensure HMRC receives the necessary details about the R&D claim, the claimant, and their projects.
It’s a form which provides HMRC with information about the claimant, the responsible person within the claimant who has taken responsibility for the R&D claim and the agents involved in the preparation of the R&D claim.
As well as providing details on technical projects and qualifying costs for the period, HMRC also requires confirmation of whether the claimant qualifies for the high-intensity R&D scheme, along with supporting evidence if applicable.
The AIF was introduced to ensure claimants provide HMRC with the essential information needed to review and process R&D claims.
If the claimant has less than 3 qualifying R&D projects, these must be detailed in the AIF. If there are more than three projects, a minimum of three projects must be detailed, covering 50% or more of the total expenditure being claimed for.
If the AIF is not submitted, HMRC will issue a letter stating that the R&D claim has been rejected due to the absence of the required electronically filed ‘additional information form.
Starting from accounting periods that begin on or after 1 April 2024, an overseas expenditure cap will apply to subcontractor and externally provided worker (EPW) costs. Subcontractors must conduct their work in the UK, while EPWs must have their earnings subject to UK PAYE and Class 1 National Insurance contributions (NIC).
For accounting periods starting on or after 1 April 2023, HMRC requires a claim notification form to be submitted for R&D claims. Innovation Tax manages this submission for clients.
The form must be submitted within six months after the end of the accounting period in which the claim is made. However, it can be submitted anytime from the first day of the accounting period.
The form requires similar claimant details as the AIF. However, since R&D activities may not have occurred yet, only a high-level summary of planned activities is necessary.
Claimants may not need to submit the form if they have successfully claimed R&D relief in previous years. Innovation Tax will review each case to determine eligibility by checking:
This is an area fraught with error, many believe that if any R&D claim has been made in the last three years the claim notification is not required, however the submission dates are the key here and need to be reviewed carefully.
We estimate you could receive up to
as cash repayment
If you have invested in R&D activities in the last 2 years, get an instant estimate of what your claim value may be. If you don’t have the exact figures now, don’t worry, Innovation Tax can identify all your qualifying activities and eligible costs, to ensure you receive the full benefit that you are entitled to.
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