What are Research and Development Tax Credits?
Research and development (R&D) tax credits are a valuable government tax relief that rewards UK companies for investing in innovation.
- Companies that spend money developing new products, processes or services; or enhancing existing ones, are eligible for a cash payment and/or Corporation Tax reduction.
R&D tax credit rates are the equivalent of up to 33p for every £1 of qualifying expenditure.
They can be used as an alternative to innovation grants for research and development funding. Sometimes they can complement them too.
What counts as R&D?
For tax purposes, HMRC R&D requirements are purposefully broad. Whatever size or sector, if your company is taking a risk by attempting to ‘resolve scientific or technological uncertainties’ then you may be carrying out qualifying activity. This could include:
- Creating new products, processes or services.
- Changing or modifying an existing product, process or service.
This means that if you’re not sure your project is scientifically or technologically possible, or you don’t know how to achieve it in practice, you could be resolving uncertainties and therefore qualify for R&D tax credits.
Within the accepted HMRC research and development definition, R&D doesn’t have to have been successful to qualify. You can also include work undertaken for a client as well as your own projects.
What R&D costs can I claim for?
When putting together an R&D tax credit claim, we look for the following types of qualifying R&D expenditure:
- Expenditure on staff including salaries, employer’s NIC and pension contributions.
- Expenditure on subcontractors and freelancers.
- Expenditure on materials and consumables including heat, light and power that are used up or transformed by the R&D process.
- Expenditure on some types of software
- Reimbursed expenses
The above costs have to be presented to HMRC in a manner that clearly illustrates how these qualify in respect to your company and the rules of the scheme. Vantage have vast experience in presenting these figures in a way that HMRC can quickly see that they are qualifying and the reasons why. We also know what shouldn't be included in a claim (plant hire, for example).