Where to Start with Your R&D Tax Credit Application
Navigating an R&D Tax Credit application can initially appear overwhelming. With a large amount of information and criteria, knowing where to begin is often the biggest hurdle. This guide will break down the process and help you identify the starting point for your application.
What Are R&D Tax Credits?
R&D Tax Credits are a UK government incentive designed to encourage companies to invest in research and development. They offer a valuable source of income to businesses, reducing their tax bill or awarding cash repayments. Qualifying R&D activities can range from developing new products to enhancing existing processes. It’s not just about ‘white coat’ scientific research but also developmental work in design, engineering, and software.
The Benefits of Claiming Tax Credits
- Financial Boost: You can reclaim up to 33% of your development expenses as a cash rebate or a deduction on your corporation tax.
- A Market Advantage: Invest in creating new products, services, and systems to stay ahead of the competition.
- Have Ownership: Fund your innovation without giving up any stake in your business.
- Easy Access to Funds: Compared to other innovation financing methods like corporate loans or venture capital, R&D Tax Relief is more readily available.
- Quick processing: Receive your cash rebate or tax deduction as swiftly as 28 days post-filing or even 12 months earlier if you opt for our Advance Funding service.
- Two-Year Window to Apply: HMRC permits businesses to claim tax credits for R&D activities up to two years past the end of the relevant financial year.
Where to Start
Beginning your R&D Tax Credit application can feel daunting. Start by asking yourself these questions:
- Are you a UK-registered business that is liable for corporation tax?
- Is your company working on projects in a field of science or technology and projects and activities that help resolve scientific or technological uncertainties?
- Is your company working on one or more research and development projects?
- Were these uncertainties overseen by an expert?
It’s important to note that this isn’t limited to traditional ‘white coat’ scientific research; it also encompasses ‘brown coat’ development activities in fields like design and engineering, where challenging technological issues are addressed.
Qualifying activities span various sectors and can include:
- Developing innovative software
- Engineering design projects
- Pioneering new construction methods
- Advancing bio-energy and cleantech solutions
- Exploring novel approaches in agri-food as well as life and health sciences.
If you answer yes to the first set of questions and your project falls under the qualified activities, gather detailed records of the costs involved in these projects. These costs should be:
- Staff costs
However, costs that cannot be covered by the R&D are:
- The manufacture and distribution of products and services.
- Investment in assets under either of the R&D relief schemes isn’t typically covered. Nonetheless, a favourable 100% Research and Development Allowance might be applicable to capital investments like equipment, machinery, and buildings utilised in R&D activities.
- The expense of acquiring land.
- Costs related to the utilisation and establishment of patents and trademarks, as these expenses are associated with safeguarding the finalised R&D.
Common Pitfalls to Avoid
A common pitfall is misunderstanding what constitutes R&D. Remember, it’s about seeking advancements and overcoming technological uncertainties. Over-claiming or under-claiming are both detrimental. Ensure your claim is accurate and reflects your genuine R&D activities. Avoid vague descriptions; be specific about the innovations and challenges your project addressed.
Seeking Professional Help
While it’s possible to navigate the R&D Tax Credit process independently, professional advice can be invaluable. Our Innovation Term Loans or R&D Advance loans are a great way to accelerate your innovation funding.
From maximising your claim to needing simple guidance, contact us and make the most of your tax claim.
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