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Something for nothing: What R&D tax credits mean for your business

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Introduced a mere 20 years ago in April 200, research & redevelopment tax relief is a government initiative designed to help support companies that have legitimate expenditures incurred as part of product research and development. It’s an easy way to save money, but here’s the interesting part: more businesses are eligible to claim than most realise. Here’s more on that.

So what are these R&D credits exactly?

In short, these credits have two ways of being claimed. You can either use them for a reduction in your company’s liability or opt to take them as a form of cashback. The HMRC definition of R&D is wider than most are aware, stretching to include concepts and actions such as taking action to improve an existing type of technology or product.

These credits help to minimise the risk associated with innovation and development. Many companies do just that as part of their daily work and service offering, making R&D credits an easy no-brainer to collect. Remember, you don’t have to be in a lab wearing a white coat to benefit too!

How do I know if I’m eligible?

The specific definition of R&D as relates to the claiming of text credits is easy to grasp: your business must be involved in activities that are aimed at achieving an improvement to technology through overcoming technological uncertainty. Critically, the scope and “entry-level” of this advancement isn’t drastic; you don’t have to make a groundbreaking innovation to qualify. Any work that directly makes a product faster, smaller, less costly to produce or longer-lasting can count as R&D. Even just duplicating a process or service and making it a little better can count.

Here’s a list of areas you can claim these tax credits on for your revenue expenses:

  • Subcontracting out any activities which qualify as R&D
  • Costs for power, fuel and water
  • Any material costs for R&D activities
  • Payment of staff outside of your company for R&D activities
  • Employee staffing costs for R&D staff

Specifics on the benefits

There are two key categories within which R&D tax credits are defined. Scientific and technological innovation is recognised by the awarding of credits under either the Small and Medium Enterprise (SME) scheme or the R&D Development Expenditure Credit (RDEC) scheme.

For the former, cash repayments and savings are available between 33p and 44p per £1 spend on any activity which qualifies as R&D under the SME scheme.  For the latter, cash repayments of approximately 10p per £1 spent on R&D activities are available.

A further key point to keep in mind is that if your company is an SME that is working at a loss and is involved in R&D activities, you may be able to make a claim for a cash credit of up to a third of your qualifying R&D expenditure. That’s a significant bonus for a company that is looking to operate in any activity that involves a form of innovation. The option to make a claim if necessary when operating either intentionally or unintentionally at a loss is a major factor in the mitigation of risk commonly associated with any form of innovation and development work.

An investment worth making

Many companies are simply unaware that they can qualify for R&D tax credits and many simply don’t know they exist! A further barrier is the misconception that investigating eligibility for these credits is a costly and time-consuming affair. In truth, it’s easy for any SME to ascertain whether they can access the initiative and obtain their own R&D credits.




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