R&D Tax Credit Guide

What are R&D tax credits?

The UK government’s research and development tax credit scheme is designed to stimulate innovation in the UK economy. The program provides UK businesses with either cash credit or a corporation tax deduction to compensate for up to 33% of the cost of research and development.

The scheme is available to businesses in all sectors, as long as your activity counts as R&D. So if you’re developing new products, services, or processes; or modifying old ones, then you may be able to make a claim.

R&D Tax Credit Overview

Am I Eligible to Claim?

R&D tax credits are available to limited companies in the UK who undertake research and development projects.

What activity constitutes an R&D project for tax purposes is often debated amongst R&D claims advisors. At EmpowerRD we apply the following three criteria to get an initial indication of eligibility.

High degree of uncertainty

CRITERIA 1High degree of uncertainty

If the outcome of the R&D activity was a foregone conclusion, it probably won’t qualify. The activity should involve overcoming technological uncertainty.

Driving competitive innovation

CRITERIA 2Driving competitive innovation

The R&D activity should aim towards a genuine innovation. The new or modified product, service or process should be an advance in its field.

Requires experienced professionals

CRITERIA 3Requires experienced professionals

The R&D should be carried out by competent professionals as this indicates that the advance was challenging to achieve.

While these criteria are an indication of eligibility there are other factors that will affect HMRC’s view. For more information about eligibility, read our Eligibility Guide or get in touch with one of our team.

Which Costs Can I Claim Against?

While you may have undertaken activity that qualifies as R&D, you’ll need to identify the qualifying expenditure associated with that activity in order to claim back your R&D tax relief from HMRC.

Identifying R&D costs can get pretty complex, but the main ones you’ll likely claim for are:

Staff

Staff

The wages and some other staff costs associated with the employees undertaking R&D.

Subcontractors

Subcontractors

Subcontractors and consultants are often involved with R&D. You can claim back part of their expense.

Consumables

Consumables

Software license, chemicals, building materials, heat, light and power that are used by the R&D process.

EmpowerRD recommends

There are many more types of qualifying R&D expenditures that you can claim for. We recommend reading our Qualifying Costs Guide before identifying your own costs.

When we reviewed the past claims of one of our clients we were able to identify three times more qualifying costs than their previous advisor had done. You can read that case study here. That example goes to show how difficult and complex the process of identifying costs is. Even traditional advisors make mistakes and undervalue a claim. If you’re thinking about claiming we strongly recommend getting in touch with one of our team.

Get in touch to find out more

EmpoweRD R&D advisors use modern technology to deliver a radically improved R&D claims service at a fraction of the normal cost.

How Much Can I Claim?

The amount you can claim will largely depend on your company size and financial position.

Company Size

If you’re a company with fewer than 500 staff, and a turnover of under €100m or a balance sheet total under €86m, then you can likely claim through the SME scheme. If your company exceeds those limits then you should claim using the RDEC scheme. Read more about the differences in the schemes here.

Financial Positions

The amount of credit your receive through the SME scheme depends on your profitability. With the RDEC scheme, your profitability doesn’t affect the credit you’ll receive.

 SME SchemeRDEC Scheme
A loss-making SMEUp to 33%13%
A profit-making SMEUp to 25%13%
An SME breaking evenUp to 18%13%
A large companyN/A13%

Exceptions

If your SME has received grant funding then it may mean you need to claim through the RDEC scheme. Although this depends on the nature of the grant. One of our advisors will be able to guide you through these exceptions.

Claim Amount

In 2017-18 the average UK SME claim was £53,714 and RDEC claim was £315,789. Each year the average value of claims tend to increase.

How To Make A Claim

There are four ways to make a claim for R&D tax credits. Here we outline the costs and benefits of each.

Self-file

Methodology
Build and submit the claim yourself

Expertise
Requires R&D credit expertise in your business

Typical claim duration
Varies

Price
Varies

Suitable for claims
Up to £60k costs

Accountant

Methodology
Typically a pre-built template or questionnaire

Expertise
Low level of expertise

Typical claim duration
2-3 months

Price
Varies

Suitable for claims
Up to £60k costs

Traditional Advisor

Methodology
Phone interviews and email chains. Or an in-person business visit.

Expertise
Mixed levels of expertise

Typical claim duration
1-2 months

Price
10-33%

Suitable for claims
Varies

EmpowerRD

Methodology
Advisors available over phone, email and live chat. Online data collection 24/7.

Expertise
Ex-HMRC inspectors and senior R&D claims assessors

Typical claim duration
1-2 weeks

Price
5% or less

Suitable for claims
Over £60k costs

EmpowerRD recommends

We recommend using an accountant or self-filing if you’ve spent less than £50k on research & development in the past financial year. The government publishes a short guide for small companies to self-file here.

If you’ve spent more than £50k we recommend speaking with one of our advisors about your claim process. At that level and beyond, identifying your costs will become more complex, and HMRC will begin to apply more scrutiny to your claim.

It’s also worth noting that if this is your first time making a claim for research and development tax relief then you can claim for your last two accounting periods.

How Long Does It Take To Receive The Funds?

HMRC commit to a payout SLA of 28 days for both SME and RDEC claims.

However, our 2019 data showed an average payout wait of 47 days for our clients. In some cases we saw payouts taking up to 4 months before being received. We publish the most up-to-date payout estimates on our HMRC Payout Timing Page.

Time taken to receive SME claim payout

Time taken to receive SME claim payout

If you want to avoid the uncertainty of when you will receive your funds from HMRC then we recommend choosing EmpowerRD Now. EmpowerRD Now will deliver your funds as soon as your claim is submitted to HMRC.

The Benefits of R&D Tax Credits

We have seen businesses transformed by the research and development expenditure credit they receive. It often provides an essential stepping stone to promote further growth, investment and profitability.

The most recent study by the government indicates that for every £1 spent on the R&D tax credit claims, an additional £2 of R&D expenditure is generated in the economy. So the tax incentive continues to be a successful driver of UK competitiveness.

If you have any further questions about the scheme then be sure to check our FAQ here. Or get in touch with one of our advisors.

About EmpowerRD

We’ve radically improved the process of making an R&D tax credit claim.

At EmpowerRD we employ industry-leading R&D claims advisors and ex-HMRC inspectors to assess your claim and help you identify your costs, while also providing an intelligent online platform to help you to co-ordinate the claim amongst your team. Read about the benefits of using EmpowerRD in our Case Studies.

If you’re an SME and claiming back on more than £50k of costs, or you’re applying through the RDEC scheme, then it makes sense to use EmpowerRD for your claim.

Get in touch to find out more

EmpowerRD advisors use modern technology to deliver a radically improved R&D claims service at a fraction of the traditional cost.

0800 464 7143

 

 

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