R&D Tax Credits – What are they and how can I claim them?

For companies carrying out research and development, R&D Tax Credits can be a vital source of support. That’s especially so for SMEs, which benefit from some particularly generous limits. R&D Tax Credits are designed to help any qualifying organisation when it comes to development – they have been a part of the government’s business strategy for several years and could be a great source of support for your company.

What are R&D Tax Credits?

There are two types of R&D Tax Credits – Small and Medium-sized Enterprises (SME) and R&D Relief and Research and Development Expenditure Credit (RDEC). The SME scheme is aimed at smaller companies carrying out development activities and provides the opportunity to reinvest cash. This can either be a credit against a future tax bill (the credit is equivalent to 230% of the value of R&D spending, which could potentially cover tax liability for an entire year for some businesses) or a cash payment to the value of 14.5% of the amount spent on R&D. The RDEC scheme applies to companies with more than 500 staff and a total turnover of over €100m or a balance sheet total over €86m. It creates a credit of 13% of R&D expenditure that can be applied to a future tax bill.

What kind of company is eligible?

R&D Tax Credits are available to both companies paying UK corporation tax and loss-making businesses, engaged in seeking a technical or scientific advance. Other conditions include commercial viability and oversight by experts in the field.

How can your business claim R&D Tax Credits?

• Define the project. These tax credits can be claimed for multiple projects in a year, which can be helpful if part of the work doesn’t count as eligible costs. Projects should be clearly defined in terms of a start and end point – those that have a duration of years can be broken down into phases for the purposes of R&D Tax Credits.
• Choose the scheme. While the SME scheme is more generous, the RDEC scheme is the only one that will be available to organisations that fall above the size and turnover cut-off.
• Collect eligible costs. There are limits on the costs that companies can claim under either scheme and these fall into eight distinct categories:
  • Direct staff costs
  • The cost of external contractors and experts that have been contracted by the company
  • Any R&D that has been subcontracted out but is still paid for by the company
  • R&D consumables
  • Software that is used to run the project
  • Payments to clinical trial volunteers
  • Funding for independent research for some parts of the project
  • Designing and building prototypes
• Submit the application. This will need to include a technical narrative and the right paperwork (CT600). Claims can be made up to two years after a project ends.

Claiming R&D Tax Credits can be incredibly beneficial for businesses engaged in development and looking for ways to minimise tax burdens going forward. With SPRK Capital Advance Funding for businesses, you can access your funds throughout the year, on either an ad hoc or quarterly basis, without the need to wait more than 15 months down the line.

If you’re looking for a strategic option to keep cash flow healthy, get in touch with the team through our contact page or apply now.