Research & Development Tax Credits are a UK tax break aimed at encouraging companies to spend more on R&D activities, which the government believes are beneficial to the UK economy.
The benefit is received as a corporation tax refund, or as a reduction in corporation tax payable. Claims are submitted alongside the corporation tax return and can be made up to 2 years after the end of the period to which they relate. Many qualifying companies use the benefit to invest in further R&D activities, but they can be used for anything, which includes paying out dividends.
Broadly speaking, a project qualifies if it constitutes an “advance” in science and technology, which is defined as an improvement in overall knowledge and capability in a technical field.
A key factor in determining if a project qualifies is if uncertainty exists around the end outcome. This would typically be the case where you are attempting something that no others have achieved previously. Even unsuccessful projects can qualify for R&D tax credits.
As you would expect though, HMRC have some fairly detailed guidelines on what constitutes R&D.
We've summarised the key criteria below:
Profitable and lossmaking SMEs are able to recover up to 33% of the amount they’ve spent on qualifying R&D. Large companies can recover up to 10% of their R&D expenditure.
This is by no means an exhaustive list, so it really is important to utilise our expertise to ensure that any claim is maximised.
Some typical R&D costs are given below:
Developing manufacturing processes