Research and Development (R&D) Tax Credits – or R&D Tax Relief – is a government incentive designed to reward UK businesses undertaking qualifying R&D activities within the UK. Though many thousands of companies claim every year, it’s still vastly underutilised – due to a lack of awareness, doubt about eligibility, or misconceptions about disqualification rules.
What you will learn on this page:
- What is an R&D tax credit claim?
- How do R&D tax claims work?
- Am I eligible to claim R&D tax credits?
- How do I claim R&D tax credits?
Already claiming R&D tax credits?
Companies investing in research and development (R&D) for new products, processes or services; or are enhancing existing ones are eligible to submit a claim to HMRC for certain costs incurred for that activity. For an eligible claim, in return, the business will receive either Corporation Tax relief for that financial year and/or cash payment. This is an incentive to encourage continuous investment in innovation and promote positive economic growth in the UK.
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How do R&D tax claims work?
An R&D tax credit claim is typically compiled by an experienced industry expert and a tax professional.
- The eligible R&D expenditure is calculated by the industry expert to ensure all eligible costs are included for qualifying R&D activity.
- The tax professional will apply an enhancement depending on whether your claim is for the SME scheme or RDEC scheme. The enhancement will artificially increase your R&D expense for the year and reduce your taxable profit.
- This figure is then deducted from your Corporate Tax bill to give you a reduced rate of Corporation Tax. If your business is loss-making or the deduction creates a loss, you can choose to either receive a cash payment from HMRC or preserve your losses for the following financial year. The tax professional should be able to give you advice on the best position for your business. Here are some quick examples of R&D tax credit calculations.
- Once the claim has been compiled, your advisor should submit this to HMRC.
- If successful, the Corporation Tax reduction or cash payment will be applied.
If you are new to claiming R&D tax credits, you may be able to go back and claim for up to two years.
Your business may qualify if it meets the following conditions;
- You are a limited company in the UK subject to Corporation Tax
- Have carried out qualifying research and development activities
- Have spent money on R&D projects
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Claiming could not be easier, you have many options to choose from.
Aside from the option of compiling a claim yourself, there are multiple types of advisors that will work with you to ensure you have a successful R&D tax credit claim. Ultimately, your decision should be based on what's important to you, your budget, resources and the time you have available.
We've created a comparison guide for you to easily evaluate and pick a suitable R&D advisor for your needs.
Once you have decided what type of advisor you'd like to work with, be sure to do your research, as each will have slightly different approaches.
Find out how we work with our clients.
