Introduction to: R&D Tax Credits

Are you a company that is forward thinking, that looks at ways to improve efficiencies in your methods, processes, functions? Is your company involved in designing, making, constructing, manufacturing or bringing into existence products or systems?

If so, you may be entitled to claim R&D tax credits. There are two schemes available, one for large companies and one for Small and Medium Sized Enterprises (SME’s). The latter is the more generous of the two, allowing SMEs to claim back on average between £11 and £33 of every £100 eligible spend in their tax return, or if they are loss making, claim an immediate actual cash refund of some of their spend.

How does the scheme work?

Companies can make a claim for tax credits in their corporation tax return (CT600). Guidelines issued by Department for Business, Innovation and Skills regarding which businesses qualify, define R&D as taking place wherever a company is engaged in a project which is “seeking to make an advance in science or technology through the resolution of scientific or technological uncertainty”.

This definition is very wide and can cover many situations and processes, not only those involving laboratories, white coats and test tubes! For example, in the building sector certain expenditure on investigating new methods of construction could qualify and in the IT industry, spend on software development and improvement is often eligible. As can be “tweaking” the efficiency of production operations, or improving filing processes and procedures.

Low take up

Whilst R&D tax credits were first introduced 15 years ago, and the claim process has been simplified since, only 4% of eligible SMEs actually made a claim in 2014. This is thought likely down to corporation tax returns often being prepared by an external accountant or tax advisor, who may not have a full appreciation of their client’s processes and procedures, as well as limited awareness amongst businesses themselves of the scheme in general – or simply the time to sit down to investigate and begin the claim process.

Think you might qualify?

Is you think you may qualify, firstly talk to your usual accountant or advisor. If they don’t have specialist knowledge, consider contacting a specialist R&D tax reclaim company, who can usually also help you prepare the reports required by HMRC to justify a claim. And remember it is possible to back-claim for up to two years.

 

With thanks to James Gibbs from RIFT Research & Development who is contactable by email or telephone 07527 329336. Further guidance can also be found on the Gov.uk website.