Definitive guide to R&D tax credits

Whether your business is big or small, complex or simple, single or multi-site, GovGrant can manage your R&D tax claim from start to finish. As one of the oldest established innovation tax specialists in the UK GovGrant has a proven track record with HMRC. We have a well-established claim methodology giving us a 100% success rate. Here are some questions that we often get asked about claiming R&D tax relief.

What is an R&D tax credit?

Research and Development (R&D) tax credits is a tax relief or credit granted under the Corporation Tax Act 2019 and guidance given under CIRD80000. It allows UK Ltd companies to claim a tax credit based on the level of expenditure that is associated to R&D.

What costs qualify for R&D tax credits?

Qualifying expenditure for R&D includes:

  1. Salaries including pension and bonuses
  2. Subcontractors
  3. Externally provided workers
  4. Consumables
  5. Heat, light and power

The level of cost depends on the amount of R&D activity that can be identified. This is a broad subject and includes various members of staff from skilled engineers, software architects to management and support staff.

What activities qualify for R&D tax credits?

R&D activities relate to activities or projects that are focused on creating a level of improvement or advancement. These are not routine and must have an element of challenge where the answer or solution is not obvious or easily obtainable.

Can I claim R&D tax credits?

A UK registered company can make an R&D tax claim. There is no requirement to be paying corporation tax, just be liable for tax in the event that you are profit-making. Broadly speaking if you are loss-making, you can convert the tax credit to be a cash benefit to the business. If you are making profit, you can offset the credit against your tax liability.

How does R&D tax credits work?

You make a claim directly to HMRC with a summary of the costs associated with the R&D in the business along with a technical description of the work carried out.

Who qualifies for R&D tax credits?

Many companies in the UK qualify for R&D with over 43,000 claims made every year from all sectors and size of business. Check out more information on which sectors claim R&D here.

How much is the R&D tax credit?

The average R&D tax benefit claim in the UK is £54,000. This ranges from a few thousand to millions of pounds.

Do R&D tax credits count as state aid?

Yes, HMRC R&D tax credits will count towards state aid.

Can I make an R&D tax credit claim if I have a grant?

If your business has received a grant, an R&D claim can still be made. It is likely to impact the value of the claim as it is likely that if you are a SME, the project that the grant is based on will then fall into the RDEC scheme which is not as advantageous.

Does software development qualify for R&D credit?

Most companies will now have a level of software development and it can be considered as qualify expenditure for R&D tax credits. The tests of advancement overcome challenges and the answer not readily deductible still apply.

Can I capitalise R&D spend and still make an R&D tax credit claim?

If you have capitalised the R&D costs as an intangible fixed asset, an R&D tax credit claim can still be made against those costs the qualify. If they have been capitalised as a fixed asset, they cannot be considered for a tax credit but can benefit from Research and Development allowances.

What are Research and Development Capital Allowances?

Research and Development Allowances (RDAs) provides a tax deduction on a company’s capital expenditure that is associated to R&D activity. It provides a 100% deduction for tax purposes and has a wider scope for qualifying costs than standard capital allowances.

If you have any further questions please contact our experts who will be happy to help.