Many companies are unaware of how the R&D relief scheme works or how it applies to them. We've tried to capture most of the questions that we get asked. If there's anything we haven't covered, please don't hesitate to call for a no obligation chat. We'll happily discuss in more detail and advise on your eligibility.
1. The R&D Tax Relief Scheme
What is R&D Tax Relief?
Research & Development Tax Relief, a government scheme designed to reward companies who are investing in developing products or services.
What do I get back?
Depending into which element of the scheme your company would fit, you could receive a repayment of corporation tax or a payable tax credit.
How much money am I likely to get back?
This will ultimately depend on the amount spent on R&D, whether the company is an SME and how profitable the company is. An SME can recoup up to 33% of their R&D expenditure by claiming and LEs can receive up to 8.8%. For an idea of how much you could be entitled to receive, please try out our SME calculator.
2. ELIGIBILITY OF COMPANY
WHO CAN CLAIM THE RELIEF?
Any UK company who is required to file a corporation tax return can claim as long as they are doing eligible work and have eligible costs with which to claim. However, the scheme is not available to partnerships or self-employed individuals.
WHAT IS AN SME?
HMRC define and Small and Medium Enterprises as having fewer than 500 employees, turnover under €100m and a balance sheet less than €86m.
IS RELIEF ONLY AVAILABLE TO SMES?
No. The scheme also applies to companies that do not meet the definition of being an SME and are therefore Large Enterprises. However, in this instance the scheme differs and the company will only be eligible to claim the LE scheme or the Research & Development Expenditure Credit (RDEC).
DO I NEED TO OWN THE INTELLECTUAL PROPERTY (IP) OR HAVE A PATENT TO BE ELIGIBLE?
In short, no; you need neither the IP or a patent. It used to be the case that the company needed to own the IP related to the R&D to claim relief. However, the legislation was revised
If you do have a patent you may also be able to benefit from the Patent Box Tax Relief. Please click here for more details.
WHAT IF I HAVE RECEIVED GRANT FUNDING?
The company would still be able to claim relief, however some or all of the costs may come under the LE scheme. This will depend on the type of awarding body and grant received.
I AM A SUB-CONTRACTOR; CAN I CLAIM R&D TAX RELIEF?
Yes, however there are further conditions and you will treated as an LE regardless of your size. Therefore, the RDEC will be applicable to your situation and so the tax credit would be calculated at 11%.
3. ELIGIBILITY OF WORK
WHAT IS R&D FOR TAX PURPOSES?
HMRC define a qualifying project as one which "seeks to achieve and advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty. This may sound daunting, but it is a broader definition than you might think. Companies overcoming technical problems or improving existing products or systems can all be conducting eligible work. It is also not necessary for work to have been successful, so long as the aim would have been to achieve an advance. R&D is by its very nature risky and does not always succeed, so the effort taken trying to achieve this will still be eligible.
CAN YOU CLAIM FOR FAILED R&D PROJECTS?
Yes. R&D projects that failed still qualify for relief and definitely demonstrate the difficulties and uncertainties of the work.
WHAT COSTS ARE ELIGIBLE?
- Employee costs (gross salaries, employer’s NIC and pension contributions)
- Subcontractor costs
- Consumable materials (materials and components required for constructing prototypes and heat, light and power used directly in the R&D process)
- Software (licenses for software directly used in the R&D process)
I HAVE INVESTED IN NEW MACHINERY; CAN I CLAIM FOR THESE?
Plant and machinery do not form part of the costs that are eligible for R&D tax relief. However, Research & Development Capital Allowances (RDAs) might be applicable and would provide a 100% capital allowance on purchases where other 100% allowances have been used up.
I USE SUB-CONTRACTORS; CAN I CLAIM THESE AS COSTS?
Yes. As long as the work carried out was regarding a specific task relating to the project, rather than more general services, 65% of the cost can be included in the claim.
Please note that separate rules to apply to cases where the sub-contractor is connected to the company.
4. OPERATING THE SCHEME
HOW DOES THE SCHEME WORK?
The R&D Tax Relief Scheme works by enhancing the eligible costs associated with the R&D projects by a further 130%, therefore reducing the company’s taxable profit. This then results in a reduction in the company’s liability to corporation tax (currently 20%) or, if the company is in a loss position, a payable tax credit (currently 14.5%).
WHAT IS THE RESEARCH & DEVELOPMENT EXPENDITURE CREDIT (RDEC)?
If you are an LE, the RDEC scheme provides a payable tax credit (currently 11%) based on the amount of your R&D expenditure.
HOW MANY YEARS CAN I CLAIM FOR?
You will usually be able to claim for the past two accounting periods as the deadline for making a claim is two calendar years after the end of the accounting period.
MY COMPANY IS MAKING A LOSS; CAN I STILL CLAIM?
Yes. A company in a loss position can still claim and will have the option of either:
- Claiming a payable tax credit; or,
- Increasing the loss for use against future profits.
IS R&D TAX RELIEF DIFFERENT TO R&D TAX CREDITS?
R&D tax credits are part of the same scheme and are an option for companies that do not have a profit arising in the accounting period.
WILL THIS MAKE MY COMPANY LOOK LESS PROFITABLE?
The opposite is true. The uplifted R&D costs only affects the company profit or loss position for tax purposes. The accounts submitted to Companies House remain unchanged and would in fact show the additional cash held by the company as a result of a successful claim.
WHAT IS ADVANCE ASSURANCE?
This additional scheme gives a company new to the scheme the chance for HMRC to agree to the basis for their R&D claim for the first three years of trading. If you are planning on undertaking an R&D project we can assist with obtaining confirmation from HMRC on your behalf.
5. WORKING WITH G2
I ALREADY HAVE AN ACCOUNTANT; CAN YOU WORK WITH THEM?
Yes. We have many positive relationships with accountancy firms and it is best if we work alongside them so that the claim is accurate and any affects are reflected in future years.
When it comes to submitting tax returns, our accountant would still be your corporation tax agent and would primarily be responsible for submitting your accounts and tax return. We would have separate authority with HMRC and can then amend tax return submissions to submit the claim.
CAN’T MY ACCOUNTANT DO THIS?
Some accountants do, however, many prefer not to commit to identifying and reviewing the R&D that you undertake and then supporting that with a report for HMRC. Our combination of R&D tax expertise and industrial experience, means we can not only identify work that others miss, but we can also justify it to HMRC.
I AM VERY BUSY; WILL THIS BE TIME CONSUMING FOR ME AND WHO ELSE NEEDS TO BE INVOLVED?
We understand that the time you put into your business is most important. Therefore, we aim to make the process as simple for you as possible.
Our process begins with an initial technical meeting with you or other pertinent staff member, such as a Head of Development. Any documentation that can be provided from your accountant can be requested directly. Otherwise, the only information we require are the details of costs incurred during the year and we are happy to help you compile these.
HOW LONG WILL IT TAKE TO COMPLETE THE CLAIM?
Once we have all the information required, we aim to submit the claim to HMRC within two weeks. However, if you're up against a tight deadline we will ensure it is met.
The claim is then processed by HMRC, which takes between 4 and 6 weeks for repayments and tax credits to be paid to you.
WHAT WOULD HAPPEN IF HMRC ENQUIRED INTO THE CLAIM?
We minimise the risk of enquiry by ensuring that the technical report is robust, that the claim is submitted correctly and in tune with HMRC’s procedures. However, if an enquiry relating to the claim should arise we would support you and your accountant where necessary in liaising with HMRC to response to any queries and uphold the claim.
WHAT MAKES G2 DIFFERENT TO OTHER R&D SPECIALISTS?
To maximise an R&D tax claim, you need to understand R&D, not just tax. We combine specialist tax expertise with hands-on R&D and product development experience. We don't just talk about it, we do R&D, both for our clients and for ourselves. This puts us in a unique position amongst service providers.
WILL I BE TIED INTO A LONG TERM CONTRACT?
Not at all. Our standard agreement covers the previous 2 years and the current year. After that point we are happy to work on a yearly basis. Most of our clients continue to work with us long after their initial contract, recognising the value of the service and the low impact on their time.
WHERE CAN I FIND MORE INFORMATION ON R&D TAX RELIEF?
HMRC have an extensive manual that is open to the public and can be found on their website.
WHAT FEES DO YOU CHARGE?
We only charge for successful claims. Our fees are based on a percentage of the benefit that your receive and we only raise our invoice once you have received that benefit so that your cashflow is not affected.