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 with a well-established claim methodology. 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 (restrictions apply under the RDEC scheme)
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 tax credits under the SME or RDEC scheme. Find out more 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?

Under the SME scheme R&D tax credits will count towards state aid, but not under the RDEC scheme.

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.