A Guide to R&D Tax Credits

Research and Development (R&D) tax credits reward businesses for innovation and fuelling growth, offering the opportunity to transform any business. How do they work and is your business eligible for them? Find out below in our in-depth R&D tax credits guide.

What are R&D Tax Credits?

Research and Development tax credits are designed to encourage UK companies to invest in innovation and increase spending on R&D activities throughout the business. It’s one of the UK government’s top incentives for encouraging homegrown investment in research and innovation. The incentive allows companies to recover a percentage of a company’s R&D spend as a cash repayment or a reduction in Corporation Tax, even if the project fails. The practice allows profitable and loss-making SMEs to get back up to 33% of the amount they’ve spent on R&D projects. Large companies can claim up to 10% of their R&D spending back.

Benefits of R&D Tax Credits

R&D tax credits offer valuable financial support for every business. It also helps businesses in every sector in the UK develop world leading products and services. The major benefits include:

  • Cash Injection – R&D tax relief provides essential funding for businesses that don’t need to be repaid.
  • Economic Growth – public R&D delivers £7 of net economic benefit on every £1 spent and unlocks £1.40 of private R&D investment.
  • Encourage Innovation – the R&D tax credits initiative encourages businesses to invest in R&D and innovation.
  • World Leaders – R&D tax credits place the UK as thought leaders at the forefront of innovation around the world.

Who is Eligible for R&D Tax Credits?

Any business in any industry could be eligible for R&D Tax Credits. To meet the requirements, your business must have undertaken qualifying research and development activities such as creating new products or services or changing an existing product or service. HMRC has incredibly detailed criteria which your project has to meet to be eligible for a tax reduction or cash repayment. An example that would qualify is a logistics platform calculating how to get a product to the right locations on time and pricing them correctly. If a company sets up a new WordPress site, they wouldn’t qualify for R&D tax credits. The scale and performance of your R&D project can also make a difference. If a website is designed to send quick messages and images to each other, it is unlikely to qualify. However, if the website is a hit and caters for millions of daily active users, it could qualify because of the technical challenge involved to keep that website going. Another example is if a company creates a search tool that can search a few hundred documents on a hard drive, it is unlikely to qualify. However, if the tool can provide instant results while searching thousands of documents over a shared network, it likely could.

The RDEC Scheme

Companies that don’t meet the financial criteria are eligible to claim money under the RDEC scheme. While these are less beneficial for companies, it gives you 9.7% of your project costs. This cashback is open to both profitable and loss-making businesses. If you are an SME but a project you’re running is funded, it’s likely that the project and its costs will be needed to claim under the RDEC scheme. This doesn’t impact any other project you’re running, which can still claim under the helpful SME R&D tax credits scheme. It’s possible that you are likely claiming cash from both schemes, however, the application process can become quite complicated. Working with a team such as CapEx Associates will ensure you keep on top of your documentation.

How to Claim R&D Tax Credits

If you’ve got an R&D project that you think would be eligible for R&D tax credits, CapEx Associates are here to help. If you own a small business in the West Midlands or a larger company with branches across the UK, we can support you in your application to claim R&D tax credits. We use a rigorous process to deliver R&D tax credit applications that maximise every element of your project and will stand up to HMRC evaluation. We want to find out more about your business and discuss how we might be able to support you in your tax credit claims.

Get in touch
 with our expert team today to see if you’re eligible to make an R&D tax credit claim.

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