How can tech companies qualify for R&D tax relief

R&D tax credits for tech companies

Working with R&D tax relief is a smart move for tech companies, as it provides a source of funding, either as a result of cash reimbursement or tax deduction. That funding is intended for companies that are focusing on innovation and on developing new products, services and processes, so it’s ideal for enterprises in the tech industry. But how can tech companies qualify for R&D tax relief?

What is R&D tax relief?

It’s a government scheme for limited companies in the UK that supports the commitment made to nurture innovation across the country. Small businesses can claim up to 33p for every £1 spent on research and development activities. For any enterprise that starts incurring significant expenditure on R&D it’s well worth looking into a claim because this can be a sizable amount. R&D relief can be used to reduce the size of a corporation tax bill or receive a cash payment, which can be put towards further innovative R&D. It’s a satisfying self-perpetuating cycle that can create real options for tech companies.

How does an R&D tax relief claim work for tech companies?

The purpose of R&D projects will have a big impact on whether a claim is likely to be successful. For example, if the purpose is to find a more efficient or effective solution, improve existing products or create new ones, develop new processes or methods or find new ways to solve issues or challenges for customers, this is likely to make a claim successful. For tech companies, projects such as those that involve bespoke coding or innovative technology or which have an element of complexity have a good chance of being eligible for  tax relief. Some examples of what would be included are: testing out a new computer code, creating original bespoke web-based applications, developing bespoke CRM systems or investigating key questions that apply to the entire industry.

What projects don’t qualify?

There’s no hard and fast list of which tech company projects are the most likely to qualify for tax relief – or not. However, if there’s nothing innovative involved (for example, you’re building websites with well-established technology) or the projects relate to user experience, it’s unlikely that these will qualify.

What costs will qualify?

HMRC has provided guidance on the costs likely to qualify for R&D tax relief. These include direct R&D staff costs, as well as any costs that are paid to an external agency for staff. The cost of software that is directly used in R&D is also a cost likely to be covered, as well as the creation of any prototypes and consumable items like energy.

Applying for tax relief could give your tech company a source of funding that could help drive further innovation and progress. These are some of the steps that are involved in ensuring that you qualify for R&D tax relief.

SPRK Capital R&D Tax Credit Loans

SPRK Capital has solved the problem of waiting up to 15 months to access your tax relief by creating the SPRK Advance – an R&D tax credit loan – allowing you to access your funds throughout the year without the burden of waiting for your expected tax credit more than 15 months down the line.

Apply now.