How to Start Claiming R&D Tax Credits

Claiming R&D tax credits: What are they and how to claim them?

R&D tax credits are ideal for any project where there is research and development that is being used to create or improve a product or service. It’s an initiative that is designed to reward innovative enterprises and provide an additional funding stream, whether the business is currently profitable or not. Claiming R&D tax credits is a smart move if your business spends money on research and development – this is what you need to know about doing it.

Are you eligible for claiming R&D tax credits?

Businesses that pay corporation tax are eligible for R&D tax credits – so that means any enterprise operating as either a partnership or a sole trader won’t be able to claim. There are two schemes, one that is aimed at SMEs (defined as businesses with fewer than 500 employees and a turnover of less than €100 million or a balance sheet of less than €86 million) and a scheme for larger companies that fall above this benchmark.

Qualifying R&D activity

Claiming R&D tax credits successfully means being able to show that the R&D activities you’re carrying out qualify for this type of tax relief. There are two key elements to establishing this and both will need to be met in order to ensure that your activity qualifies – these are:

• A technological advance – This doesn’t have to be technology, as such, but an activity that your business is carrying out in order to create something brand new – or to improve on something already-established significantly. That could be creating a brand-new product, service or process. Or simply doing something that already exists in a new way.
• A technological uncertainty – The test for technological uncertainty is that you are focusing on trying to do something that is not already being done in your industry – or that could not easily be worked out by a competent professional working in your sector.

Claiming R&D tax credits

There are a number of different steps involved in claiming R&D tax credits – this is what you need to know:

• Consider applying for Advance Assurance –This will ensure that your claims bypass any HMRC investigations for the first three accounting periods.
• Calculate a figure for your qualifying costs – You’ll need to include a cost breakdown that shows exactly how much has been spent, and on what.
• Calculate the ‘enhancement.’ – The enhancement is the total tax relief that your business is eligible for. To do this you’ll need to multiply your total allowable costs by 130% and then add that to the original total allowable cost, producing a combined amount of 230%.
• Work out what you’ll get in tax relief terms – This isn’t something you have to do in advance but can be useful in terms of financial planning. Remember that there are different levels of relief for loss-making and profitable companies.

Claiming R&D tax credits can be a simple way to access vital funding for your business and is an opportunity not to be missed. SPRK Capital help you by giving you access to your tax credits faster; if you are interested in finding out more about a SPRK Advance, click here. Alternatively, contact us and one of our experts will be in touch.