What is R&D?
Research and development definition
HMRC defines R&D as a project that:
Looked for an advance in science and technology
Had to overcome uncertainty
Tried to overcome this uncertainty
Could not be easily worked out by a professional in the field
An advance in science or technology
The project your company undergoes must aim to create an advance in the overall field, not just for your business. For example, if your company uses an existing technology for the first time in your industry, this does not qualify. They also note that the product, process or service can count as an advance even if it has already been developed by another company, provided it is not publicly known or available.
Could not be easily worked out by a professional in the field
The R&D your company undertakes should not be seeking an advance that could otherwise be easily worked out by a professional in the field. The activity should arise as a result of the failure of other attempts to find a solution, leaving you to develop one of your own. This can be shown by demonstrating that the people working on your projects are professionals in the field and have identified uncertainties in the advance you seek.
After considering all available evidence, when a professional is not able to say for certain whether something is technologically possible, or how it can be done, a scientific or technological uncertainty exists. Before achieving it, the expert in the field cannot already know the advance or how it can be achieved.
An R&D process involving uncertainty usually goes through a process of research, testing and analysis. The HMRC guidelines specify that the R&D project tried to overcome uncertainty - you do not have to have necessarily overcome it.
What does this all mean?
You can think of an advance in science and technology as a solution to a problem. Each time a company attempts to change a product, process or service - whether it's to create something new or improve something which already exists - the R&D process can be seen as 'finding the solution'.
You do not need to have necessarily succeeded, it may be that after spending time and money you realise what you set out to achieve wasn't possible this time. This still constitutes as R&D as you have tried, and any qualifying R&D spend you incurred can be claimed back on.
It may also be that you have completed a project which didn't go to market. You are still entitled to claim, given you have met all other eligibility criteria.
For a claim to be successful, the report you file must explain to HMRC the scientific or technological advancement your project sought, how this advancement was not something that could have easily been worked out, even by professionals in the field, therefore presenting a risk you took by investing time and money to try and find a solution, how the activities you underwent tried to find the solution, and justification of all the costs associated in this effort.
R&D tax credit reliefs
Small or medium-sized enterprise R&D tax relief
The SME tax relief is designed for small or medium-sized enterprises which, by uplifting qualifying costs and reducing Corporation Tax, can reward companies with returns on qualifying R&D expenditure between 18-33%, depending on whether they are a trading-loss, profit or loss making company. Out of the two R&D tax reliefs, this one yields higher returns but there are some criteria to qualify as an SME.
Research and development expenditure credit
The RDEC relief, replacing the large company scheme in April 2016, is for large companies who do not qualify for the SME tax relief and SMEs who have been contracted to do R&D work by a large company. The credit is calculated at 13% of a company's qualifying expenditure, and after tax, can provide companies with around an 11% return on the money spent on R&D activities.
Claimed in 2018
£54k avg claim
Claim per client
Up to 33p for every £1
Spent by SMEs
Who can claim SME R&D tax relief?
Your company is considered an SME if it has:
1. Less than 500 staff
2. A turnover of under €100m or a balance sheet total under €86m
However, if your company has any connected or partner companies, this can affect your SME status. You need to include the figures of these to determine whether you can still claim SME tax relief.
Your company is considered connected to another when you hold over 50% of the voting rights or capital in another company, or they hold over 50% voting rights or capital in your company.
Your company has a partner company when you hold over 25% of the voting rights or capital in another company, or they hold over 25% of the voting rights or capital in your company.
Should you have any partner companies, you will need to add a percentage of their figures (staff, turnover or balance sheet total) to your own, proportionate to the percentage of voting rights or capital that ties the two companies. Any connected companies need to be added in full.
Some of the costs you could claim
Clinical trials volunteers
Claiming R&D tax credits
Are you eligible to make a claim?
In order to make a claim, you have to meet the following criteria:
Registered as a UK limited company
Have completed an accounting year
Undertaken activities which fall under HMRC's R&D definition
Have spent money on these activities
How can I make a claim?
What's the next step?
Whether you've never heard of R&D tax credits before, or you've already made claims in the past and want to explore if you've been getting the most out of it, we recommend first getting a free assessment.
For different companies this can mean different things. Generally this entails an initial telephone conversation, where you can discuss your business and find out if you are eligible for R&D tax credits.
Our service goes a step further. We can carry out a free technical assessment where we look at your company accounts and give you a clear indication of the costs we think qualify and how much you could receive from HMRC.
This is done at no cost and no obligation on your part. So if you're a first timer for R&D tax credits, you can find out all the information relevant to you and always choose not to work with us.
If you've made claims in the past, you're welcome to use the free assessment to send us your past claims so we can assess whether you have claimed the maximum entitlement.
Our mission is to spread awareness and support UK businesses, so we will endeavor to provide you the best service we can.