R&D Tax Credits Guide

WHAT ARE R&D TAX CREDITS?

R&D tax credits is a government sponsored programme designed to incentivise and reward UK companies for undertaking innovation activities. The programme provides companies with tax benefits that can include, reduction in corporate tax liability and /or cash which can be reinvested back into the company, such as hiring new staff or funding the company’s R&D development activities, enabling corporate growth.

IS MY BUSINESS ELIGIBLE FOR R&D TAX CREDITS?

If you have not claimed before and are uncertain if you are eligible, our R&D eligibility checker will tell you in 30 seconds.

WHO QUALIFIES FOR R&D TAX CREDITS?

SMEs and Large companies that invest time and resources in developing new and/or improved products, processes, formulas, techniques, and services are eligible for R&D tax credits. If a company is spending money on innovation activities, companies can receive either a cash benefit, refund, or a reduction in corporation tax liability. For more information on eligibility here are RDP’s 6 P’s.

WHAT COUNTS AS R&D/ WHAT ARE QUALIFYING ACTIVITIES?

HMRC’s definition of what is considered R&D is broad in nature. Whether you are an SME or Large company spread across several industries, a company is required to undertake project(s) that are unknown as to whether a solution is achievable or not. By having an unknown, a company is incurring a risk and therefore carrying out R&D activities.

Furthermore, a company that has undertaken a given project that requires resolving a scientific or technological uncertainty may be carrying out qualifying R&D activity. If a project undertaken has been shelved or considered a failure, it is these types of projects that are considered better examples of R&D because a company is providing validation that they were unable to achieve a solution.

WHAT COSTS QUALIFY FOR R&D TAX CREDITS?

If a company meets the SME criteria (less than 500 staff with a turnover under €100 million or a balance sheet total under €86 million), the following expenditures qualify:

>Salaries
>Wages
>Class 1 National Insurance contributions
>Pension fund contributions
>Subcontractor or third-party costs
>Externally Provided Workers
>Software licenses
>Consumable items

If a company does not meet the criteria of an SME and is considered Large, the company can claim the R&D Expenditure Credit (RDEC). The following expenditures qualify:

>Salaries
>Wages
>Class 1 National Insurance contributions
>Pension fund contributions
>Subcontract that are limited to the following:
>Charities
>Higher education institutes
>Scientific research organisations
>Health service body
>An individual or partnership of individuals
>Consumable items

WHAT ARE THE BENEFITS OF R&D TAX CREDITS?

As a form of innovation funding, R&D tax credits can transform your business. At RDP Associates, we are passionate about helping innovative companies realise the full potential of R&D tax credits to succeed in growth. 

HOW TO SUPPORT YOUR R&D TAX CREDIT CLAIM?

HMRC now requires narratives to support a company’s R&D expenditures. Here are the submission requirements by total number of R&D projects being claimed:
• If you are claiming for 1 to 3 projects, HMRC requires a narrative meeting for the R&D tax credit criteria on each individual project.
• If you are claiming for 4 or more projects, HMRC requires narratives meeting the R&D tax credit criteria on at least 3 to a maximum of 10 projects which between them cover 50% or more of total qualifying R&D costs
• If you are claiming for more than 10 R&D projects to cover 50% or more of your qualifying costs, HMRC requires a company to issue an email to [email protected] to confirm the best manner for submission
• Update: HMRC to issue standard claim submission form to all claimants effective 1 April 2021  

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