Introduction
Only a small percentage of UK businesses utilise the available R&D Tax Credit incentives, but many more qualify. We’re here to ensure you gain a thorough understanding of how you can take full advantage of them, and to settle any apprehension or queries you may have, if you’re considering applying.
Defining R&D- HMRC Guidelines
A project- If you are a UK-based limited company and have initiated a project to develop a product, service, or process, you could qualify for R&D Tax Credits.
The objective: Your company can be situated within any industry, here at Counting King we have assisted companies from a broad variety of sectors, but the core incentive for your project must be to seek out advancement in science or technology. This advance must span across the entire industry, and not just within your business.
A problem- In order to qualify for R&D tax credits, your project must be approaching a problem within the industry that hasn’t yet been solved. Projects initiated for the purpose of innovation can often be fraught with uncertainty, so your receipt of R&D tax credits can relieve some of the expenditure associated with this and soften the risk.
Evidence- In your claim for R&D tax credits, you need to be able to prove the validity of the problem and the uncertainty around it in the field. You will be required to provide context from industry professionals leading the project, ascertaining the difficulties around solving the problem, and how other attempts in the past have failed. You will need to demonstrate research, testing and analyses in your approach towards overcoming it. However, if the physical evidence is currently limited, you instead need to provide a dynamic account of the professionals leading the project, entailing their background, previous work, and how their experience renders them suitable to make claims on the project’s uncertainty.
If you find yourself in a position where you can put forward substantial evidence such as this, you’re in great stead for success in your application for R&D tax credits.
Available R&D Tax Credits schemes
There are two available R&D tax credit schemes available for companies of all sizes.
SME– If you’re a profit-making company, the small to medium enterprise R&D Tax Relief scheme permits a further deduction from your annual profits at the rate of 130% of your qualifying expenditure. If you are a loss-making company, you may also surrender your losses and gain a payable tax credit at the rate of 14.5%.
Is this scheme right for my company?
To qualify for SME, you need to:
Have under 500 staff on your payroll- This requirement comprises all full-time employees, including directors. For part-time or seasonal staff, you can convert their hours worked into annual work units. External staff or contractors are not included, but you would need to factor in secondees or deemed employees in your application.
Have an annual turnover of less than 100 million euros, or a balance sheet totalling less than 86 million euros- The European Commission curated this scheme, hence the currency being in Euros. So convert your annual figures and see where you stand. Any fluctuations in turnover in the coming years can be re-assessed to check that this scheme is still suitable for you.
If your company meets both these requirements, then we can help you to develop your application for the SME scheme, but if you surpass either the employee count, or the annual takings specification, you would be considered a large enterprise. If this is the case, you can apply for the RDEC scheme.
What is RDEC?
RDEC– The Research and Development Expenditure Credit scheme is a tax credit that, the value of which rose to 13% in April 2020. This payment is subject to tax.
There are a host of expenses that these both of schemes can help to subsidise, including
- Staff costs
- 65% of sub-contractor costs
- Consumable items
Additionally, the SME scheme can help with the cost of
- Software license fees
- Clinical trials volunteers
Things To Consider When Applying For R&D Tax Credits
Grants- A common misconception when a company is contemplating avenues to explore for funding an R&D project is that grants and R&D Tax Credits cannot be used together. This is a myth. Both types of financial subsidies can be applied for when embarking upon an R&D project and can in fact complement each other. Grants are commonly considered as more of an initial cash injection, yet R&D Tax Credits are best utilised to cover costs throughout various stages of the process. The contrasting benefits both subsidies have to offer can provide your company with a fruitful and continuous body of funding throughout every stage of your project. However, the timing of your applications can be crucial, and there can be complexities involved, but we can guide you through this process to ensure you receive an optimal amount of funding, so that your project has the best possible chance of succeeding.
The main point to consider at this stage is that, if you have at any point been in receipt of a state aid grant, you would likely qualify for the RDEC Tax Credit Scheme, rather than SME. Nonetheless, applying for Tax Credits can certainly still be advantageous.
Connected enterprises- You should consider any companies that may be connected to your business, as this may determine which scheme you are suitable for. As a general guide, you could be considered a linked enterprise if:
- Another company owns significant voting rights of your business
- They can appoint or remove members of your management team
- Have a dominant influence over your company
Applying for multiple projects- You can claim at any one time for up to ten R&D projects, providing they are linked to your accounting periods of the last two years.
Applying for 1-3 projects? You will need to include the details of each project in your application.
Applying for 4 or more? Include the details of at least three of these projects, which collectively surmount to 50% or more of your total qualifying costs.
R&D Tax Credit Application- Where Do We Come In?
We are aware of the specific nuances and complexities associated with applying for R&D tax credits. For example, did you know you can claim back expenses for employees that have been reimbursed for individual costs such as travelling for work, but those costs can’t be claimed for if they were paid for directly by company account?
This is why we have a team of specialists who can help to maximise the potential of your claim. Through an initial Discovery meeting we will assess whether you qualify, and which scheme would be suitable for you. Following this, we will take your application forward, analysing all the fine details of your R&D process to gain a thorough understanding of what qualifies, and take the weight from your shoulders.
Sound good? You can call us at 0161 667 5069, or email at info@countingking.co.uk for an initial consultation.