What Are The Four Main Benefits Of R&D Tax Credits?
Research and development (R&D) Tax Credits are a vital consideration for innovative UK companies. Many reap significant financial rewards having claimed, either by reducing their Corporation Tax liability or receiving a cash injection.
Launched by the UK government in the year 2000, the popularity of R&D Tax Credits has grown and there is much to love about them. Unfortunately, there are still many businesses out there who are eligible to claim but don’t, meaning they potentially miss out on thousands of pounds. Sometimes this is because they don’t think the scheme is open to them, or that their R&D projects aren’t eligible. Many others are worried about the complexities of claiming or simply don’t know the scheme exists. If you would like to find out more about this relief and how to claim, information is available on our R&D Tax Credits webpage.
At Tax Cloud we regularly see first-hand the huge and positive difference R&D Tax Credits can make to a company and it’s an area we’re proud to work in. With this in mind, we’ve put together what we think are the top four main benefits in claiming R&D Tax Credits to bring a little inspiration.
Benefit #1: It doesn’t matter what sector or industry your business is in
A major benefit of the R&D Tax Credits scheme is the fact that any business in any sector or industry is welcome to apply. This hopefully helps to debunk the common myth that only companies working in the scientific and technological spheres will meet the criteria, as this simply isn’t true. Essentially, as long as a company is UK-based and registered to pay Corporation Tax then its innovative activities are likely to qualify.
The whole point is that the research and development activities undertaken have the aim of attempting to resolve a specific technological or scientific uncertainty. This is also regardless of a company’s size, however there are two branches to the scheme and which one a company uses will depend on whether or not it’s classed as an SME.
To claim as an SME, businesses should:
- Be a UK limited company
- Been trading for more than 12 months
- Have 500 employees or fewer
- Have an annual turnover of no more than €100 million or a balance sheet of less than €86 million.
Larger companies meanwhile should apply for R&D Tax Credits under the Research and Development Expenditure Credit (RDEC) scheme. Under RDEC, companies can claim R&D tax relief of up to 230% of eligible expenditure. Such expenses include materials, staff wages, certain sub-contracting costs and consumables.
The good news here too is that you can still claim even if the R&D project ultimately failed in its objectives, as long as technical and/or scientific investment was made.
Benefit #2: A broad range of costs are eligible
A substantial part of the R&D Tax Credits application process is working out which costs you can claim for, as well as how you should make your calculations. This is where our Tax Cloud portal is so useful, because it allows you to input your own numbers and does the working out for you.
Generally speaking, there are eight kinds of qualifying costs when it comes to making an R&D Tax Credit claim:
- Direct staffing costs like employers NICs and staff wages
- R&D consumables used up directly in the R&D process
- Contributions to independent research
- Externally provided workers
- Subcontracted R&D
- Clinical trial volunteers
Being HMRC, there are of course some exceptions within each category. This is why we highly recommend speaking to us so your application is right first time, as any mistakes can lead to extremely stressful (not to mention expensive) HMRC enquiries.
Benefit #3: There’s no minimum claim requirement for R&D Tax Credits
There is no minimum amount which companies need to spend on qualifying R&D projects to be able to claim R&D Tax Credits. However in previous years this wasn’t the case, and many businesses still aren’t aware that the rules have changed.
Prior to April 2012, companies needed to have spent at least £10,000 on relevant R&D activities in order to claim R&D Tax Credits. But as this no longer applies, R&D Tax Credit applications can be made even for the smallest amounts, which is great news for lower spending companies.
Benefit #4: Even companies that are loss-making can apply
We’ve found in the past that many businesses don’t claim for R&D Tax Credits simply because they haven’t turned a profit. They therefore don’t believe they are eligible for the relief, but this is incorrect.
Loss making companies are able to receive R&D Tax Credits as long as their application is approved by HMRC. How much a company will receive however depends on the regime it has used.
- Loss-making SMEs can receive between 14.5% and 33% of qualifying R&D expenditure
- Loss-making larger companies or subsidised projects can attract relief totalling 9.7% of eligible R&D expenditure.
Loss making SME businesses can also choose to not surrender the R&D loss but instead carry it forwards/backwards against profits.
We know from experience that making a claim is not straightforward for companies that have made a loss and applying can be daunting. When you come to us for guidance, our consultants will work with you to gain a full understanding of your company’s past and future tax positioning, thereby helping you to maximise the R&D tax relief benefits you’re entitled to.
How can Tax Cloud help?
Tax Cloud UK is part of Myriad Associates, an expert team of experienced R&D tax consultants. We will be pleased to answer any questions you may have, allay any fears and work with you to facilitate your R&D Tax Credit application to give you the best chance of a success and maximising your claim.
Sign up to Tax Cloud to today to begin your R&D claim. With separate service offerings for both businesses and accountants, using Tax Cloud is a fast and accurate way of claiming R&D tax credits in 2019.
To discuss anything further, call us on 0207 118 6045 or use our contact page for excellent quality, professional advice.
- Submitting R&D tax claims since 2001
- 100% success rate
- Over £100m claimed and counting
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- In-house technical, costing and tax experts
- Member of the Research and Development Consultative (RDCC) committee
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