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What are the criteria for R&D eligibility?

The two criteria in determining whether an innovative company is eligible for R&D tax relief are advancement and uncertainty.

What expenditure qualifies?

If your company and project both meet the necessary criteria, then it is possible to claim R&D tax relief on revenue expenditure, and in some cases, capitalised revenue expenditure across three main areas: staff costs (gross salary, employers NIC, employers pension contributions, reimbursed expenses), subcontractors/freelancers, and consumable items (i.e. heat, light & power, materials and equipment used up or transformed by the R&D process).

Are we eligible for the incentive?

Many business owners and finance departments will wonder if they are eligible for R&D tax credits. The answer is often yes. If your company is taking a risk by innovating, improving or developing a process, product or service, then it can qualify for a Research & Development tax relief claim. It’s rare to find a business where all innovative activity is transparent and neatly housed within easily identifiable job roles and functions. We tend to find it’s more typical that R&D functions are spread across numerous aspects of the organisation, with some individuals playing a far more active role.

We often start by working with clients to identify the specific job roles within a business and attributing a percentage of their time as qualifying Research & Development expenditure. As a result, it’s not uncommon for us to find a web developer, systems engineer, technical director, product designer or CEO that is more involved in day-to-day innovative activity than even a dedicated R&D Manager might be.

How is R&D tax relief calculated?

For SMEs, the R&D tax relief claim enhancement (the enhanced deduction) is currently 230% of the qualifying expenditure for R&D tax credits incurred. Therefore, where an SME incurs expenditure of £100,000 on qualifying R&D, it can deduct £230,000 when calculating its taxable profit (or loss) for corporation tax purposes. As the £100,000 would already be accounted for in its accounts, the balance of £130,000 would be an additional deduction from its taxable profit, and the corporation tax saving would be £24,700 (at the current corporation tax rate of 19%) – the equivalent of the company receiving approximately 25p from HMRC for every £1 they spent on R&D activities.

Can we claim even if we are unprofitable?

A common misconception about R&D tax credits is that a company must be profitable to make a claim. This is not the case, as SME’s can surrender their losses for a cash benefit at a recovery rate between 18.85% to 33.25% on the original R&D expenditure.

Call one of our advisors now on 0161 757 3657. 

Can we claim even if we have received grant funding?

Another common misconception is that if your company has received grant funding, it is not possible to claim R&D tax credits. This is not the case; even SMEs that have taken external funding in the form of grants can claim back on investing in innovation in the form of an R&D claim.

Call one of our advisors on 0161 757 3657.

Find out if you’re eligible today

CLICK HERE