What costs can you claim through R&D Tax Credits?
Is your business involved in the research and development of new or existing products and services? If so listen up! You may be able to claim back up to 33% of the costs thanks to the very generous R&D Tax Credits scheme.
What are R&D Tax Credits?
The R&D Tax Credits scheme was launched back in the year 2000 as a government tax incentive for UK companies to innovate. It works by allowing companies carrying out eligible R&D projects to claim back a proportion of their costs (yes, up to 33%). The relief is then applied either as a Corporation Tax reduction, or - if the company is loss-making - as a cash credit.
Any UK company of any size and in any industry can apply for R&D Tax Credits. The main thing is that money was invested in making some kind of advance in science or technology where the outcome was uncertain. The advance must also have benefitted the wider field the company operates in, not just the company itself.
Of course, certain industries like construction, IT and manufacturing lend themselves particularly to R&D Tax Credits. But the fact is, we’re not talking science labs and tech conglomerates here, and it doesn’t even matter if the project ultimately failed or not. We’re talking about the ‘journey of discovery’ here, not just the end result.
So if the project left even the most competent professionals in your field scratching their heads, an R&D Tax Credits claim is likely to follow.
So what costs can R&D Tax Credits cover?
The scope of R&D costs that can be included in an R&D Tax Credits claim is deliberately very broad. Each R&D project is unique and it’s not always easy to know which exact ones are covered (which is where the Tax Cloud portal comes in).
Having said that, there are a few common ones that tend to make up the bulk of many claims. They are:
Paying people is one of the biggest outgoings that most companies face, and it’s likely that these costs will increase if you are involved in R&D.
If you are undertaking a new project that is proving to be challenging, you may decide you need to employ more staff. Luckily you will be able to claim back some of these costs using R&D Tax Credits. It covers things like salaries, employers NICs, company pension contributions and even reimbursed expenses. You can also claim back agency workers that are involved in the R&D process, however this will be restricted to 65% of the agencies invoice value.
It is not uncommon for an R&D team to consist of many individuals from different parts of the business. Your R&D project team may include the R&D Manager, a Lead Developer, Engineers, Project Co-ordinators, CAD Engineers, Quality Control and Testing specialists, and Cost Accountants, as well as members of the senior management team. Again, the costs of employing these people to carry out the R&D project can be included in an R&D Tax Credits claim.
Sub-contractors and freelancers
If you outsource some of the development work or utilise freelancers, then you can include these costs in your R&D tax claim too. The sub-contractor can be based anywhere in the world and the freelancer must be actively involved in the project and just not provide professional advice.
For unconnected parties the invoice value is restricted to 65%. If the party is connected such as a subsidiary then a special ‘look through test’ has to be performed.
Sounds confusing? The good news is that when you use the Tax Cloud portal for your claim, our experts will guide you through this.
Materials and consumables
Developing and testing prototypes means using up materials – and again, the costs of these materials can typically be included in an R&D tax relief claim. This can include things like materials, components, prototype tooling, heat, light and power, all of which are either used up in transformed in the R&D process.
The latest software is a necessary but also a costly part of R&D. If you are using software in your development activities or using project management software to keep track of your team, you will be able to claim back the cost of software through R&D Tax Credits.
As an aside, if your business actually works in developing new software (specifically we’re thinking video games and apps here) you may also be able to claim Video Games Tax Relief.
Why use the Tax Cloud portal?
The fact is that claiming R&D Tax Credits can be really daunting, even if you’ve claimed before. Overclaiming (i.e adding costs to your claim that aren’t eligible) can raise suspicion with HMRC and potentially lead to a wider investigation into your tax affairs. But underclaiming means leaving off costs that could easily lead to thousands of pounds in extra tax relief - money that rightfully belongs to your company.
For smaller businesses in particular, the Tax Cloud portal is the ideal solution in putting together and submitting a watertight R&D tax relief claim. Developed by the R&D tax and funding experts at Myriad Associates, it’s simply a case of following each step to add in your costs and put together a comprehensive, persuasive R&D technical report. Each stage only ‘unlocks’ once our team have checked it and provided feedback which removes all the guesswork for you. And of course, we’re on hand every step of the way if you have any questions or need advice.
Why not see how much your company could claim using our R&D tax calculator. Then try the free demo and see how the Tax Cloud works with no commitment or obligation. In fact, with even small claims sitting at an average of £55,000 you could end up with a far bigger award than you first thought.
Get in touch
- Submitting R&D tax claims since 2001
- 100% success rate
- Over £100m claimed and counting
- Industry leading specialists
- In-house technical, costing and tax experts
- Member of the Research and Development Consultative (RDCC) committee
Meet some of the team behind Tax Cloud