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What are Tax Credits UK?

R&D tax credits explained

Rewarding innovation and fuelling growth, R&D tax credits have the power to transform your business.

What are R&D tax credits?

Research and development (R&D) tax credits are a government incentive designed to reward UK companies for investing in innovation. They are a valuable source of cash for businesses to invest in accelerating their R&D, hiring new staff and ultimately growing.

How do R&D tax credits work?

Companies that spend money developing new products, processes or services; or enhancing existing ones, are eligible for R&D tax relief. If you’re spending money on your innovation, you can make an R&D tax credit claim to receive either a cash payment and/or Corporation Tax reduction. The scope for identifying R&D is huge – in fact, it exists in every single sector. And if you’re making a claim for the first time, you can typically claim R&D tax relief for your last two completed accounting periods.

Who qualifies for R&D tax credits?

R&D can take place in any sector. It occurs in everything from cheese-making to chemical engineering, and construction to digital development.

What counts as R&D?

The HMRC R&D criteria 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:

lightbulb out of box

Creating new products, processes or services.

service modify spanner

Changing or modifying an existing product, process or service.

If you’re not sure if your project is possible, or you don’t know how to achieve it in practice, you could be resolving technological uncertainties and be carrying out qualifying R&D.

Within the government’s accepted 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. Further detail is available in our KnowledgeBank.

Five Key Benefits Of R&D Tax Credits

Research and development (R&D) Tax Credits offer a huge opportunity to UK limited companies who are innovative and looking to grow and improve their businesses. If your company has conducted exercises to change processes or create new ones then we urge you to come forward and see if you can avail of this fantastic incentive from the UK government and HMRC where you can receive significant finance rewards to further projects, start new R&D projects and stimulate the economy. The Research and development (R&D) incentive can help by reducing your Corporation Tax liability or in lots of cases receive a tax credit cash injection.

The UK government launched this fantastic incentive in the year 2000 to stimulate and grow the economy by rewarding UK limited companies for their hard work and show case the innovation and talent here in the UK and where possible globally. Sadly many companies fail to claim their R&D tax credit for several reasons; perhaps they are unaware of the incentive, possibly a perceived opinion the process is lengthy or complicated or in some cases they assume they wouldn’t qualify. The issue with this is that they miss out on possibly receiving thousands which would benefit their company. If you would like to see if you qualify for past, current or future projects then please visit our website for more information pertaining to the R&D Tax Credit incentive or get in touch and contact us directly where we are happy to help with free advice on 0161 399 0152.

The team at Counting King advise, guide and assist on creating the reports necessary for HMRC to review and approve your R&D tax credit application on a daily basis. We have helped some great companies with special causes make a direct impact in the community and likewise we have assisted large UK companies understand the incentive and worked with their finance department to submit a claim and reap a real benefit. Below you will find some key points regarding the research and development scheme and how we hope it will help your company going forward.

R&D Key Point #1: All industries and sectors can apply providing you meet the really simple criteria set out by HMRC

The UK Government want to encourage all limited companies to take part and utilise this great incentive and so no matter what industry or sector your business is in, it can submit a claim for the R&D Tax Credit scheme. There is sometimes a misconception that companies who are working from a scientific or technological background are the only ones who qualify but this is simply not the case. Providing you are a UK limited company who are registered to pay Corporation Tax and have performed some form of innovative activity then you are likely to qualify. A couple of examples would be; companies in the food industry make create a new “free from” recipe or a training provider may have carried out a project (possibly with a sub-contracted software firm) to design and implement an online training platform. Both of these would have a great case to put forward and potentially receive thousands.

The whole point is that the research and development activities undertaken have the aim of attempting to resolve a specific technological or scientific uncertainty. This is also regardless of a company’s size, however there are two branches to the scheme and which one a company uses will depend on whether or not it’s classed as an SME.

To claim as an SME, businesses should:

  • Be a UK limited company
  • Been trading for more than 12 months
  • Have 500 employees or fewer
  • Have an annual turnover of no more than €100 million or a balance sheet of less than €86 million.

Larger companies meanwhile should apply for R&D Tax Credits under the Research and Development Expenditure Credit (RDEC) scheme. Under RDEC, companies can claim R&D tax relief of up to 230% of eligible expenditure. Such expenses include materials, staff wages, certain sub-contracting costs and consumables.

The good news here too is that you can still claim even if the R&D project ultimately failed in its objectives, as long as technical and/or scientific investment was made.

Benefit #2: A broad range of costs are eligible

A substantial part of the R&D Tax Credits application process is working out which costs you can claim for, as well as how you should make your calculations. This is where our R&D Tax Calculator is so useful, because it allows you to input your own numbers and does the working out for you.

Generally speaking, there are eight kinds of qualifying costs when it comes to making an R&D Tax Credit claim:

  • Direct staffing costs like employers NICs and staff wages
  • R&D consumables used up directly in the R&D process
  • Software
  • Contributions to independent research
  • Externally provided workers
  • Subcontracted R&D
  • Prototypes
  • Clinical trial volunteers

Being HMRC, there are of course some exceptions within each category. This is why we highly recommend speaking to us so your application is right first time, as any mistakes can lead to extremely stressful (not to mention expensive) HMRC enquiries.

Benefit #3: There’s no minimum claim requirement for R&D Tax Credits

There is no minimum amount which companies need to spend on qualifying R&D projects to be able to claim R&D Tax Credits. However in previous years this wasn’t the case, and many businesses still aren’t aware that the rules have changed.

Prior to April 2012, companies needed to have spent at least £10,000 on relevant R&D activities in order to claim R&D Tax Credits. But as this no longer applies, R&D Tax Credit applications can be made even for the smallest amounts, which is great news for lower spending companies.

Benefit #4: Even companies that are loss-making can apply

We’ve found in the past that many businesses don’t claim for R&D Tax Credits simply because they haven’t turned a profit. They therefore don’t believe they are eligible for the relief, but this is incorrect.

Loss making companies are able to receive R&D Tax Credits as long as their application is approved by HMRC. How much a company will receive however depends on the regime it has used.

  • Loss-making SMEs can receive between 14.5% and 33% of qualifying R&D expenditure
  • Loss-making larger companies or subsidised projects can attract relief totalling 9.7% of eligible R&D expenditure.

Loss making SME businesses can also choose to not surrender the R&D loss but instead carry it forwards/backwards against profits.

We know from experience that making a claim is not straightforward for companies that have made a loss and applying can be daunting. When you come to us for guidance, our consultants will work with you to gain a full understanding of your company’s past and future tax positioning, thereby helping you to maximise the R&D tax relief benefits you’re entitled to.

How can Counting King help?

Counting King have an expert team of experienced R&D tax consultants. We will be pleased to answer any questions you may have, allay any fears and work with you to facilitate your R&D Tax Credit application to give you the best chance of a success and maximising your claim.

Sign up to Counting King today to begin your R&D claim. We help companies and accountants to claim in a fast and accurate way for R&D tax credits in 2019.

To discuss anything further, call us on 0161 399 0152 or use our contact page for excellent quality, professional advice.

5 Common Misconceptions About R&D Tax Credits

The R&D Tax Credit incentive was launched in the year 2000. Since then it has gone from strength strength and is regarded as resounding success. UK limited companies have been claiming in the region of £4.3 billion in research and development tax relief which is a great way to add another source of funding for existing or future projects.

All UK limited companies can benefit from R&D Tax Credits which can assist you with the process of growing and expanding your company. We are aware at how costly this can be and this is why the UK government has implemented the research and development tax relief scheme. With additional funds you can improve infrastructure and processes. Design and build new technology and software or take on new contracts and have the funds to carry out the work.

R&D Tax Credits is a globally recognised scheme which many counties enjoy. The government offer this incentive to drive economic growth which is a very effective stimulus. We often speak to companies who are unaware of what qualifies as R&D so they often miss out on thousands of pounds in R&D tax relief or R&D tax credits.

1. R&D Tax Credits don’t qualify if your project fails. FALSE

In some circumstances, projects fail or cease to continue. If you don’t succeed in obtaining your goal, this doesn’t mean that your company hasn’t expended valuable resources and funds in its pursuit. Your company has taken the time to undertake extensive R&D work which will almost certainly qualify. The process of the project and what is entails are still costs which have been expended. HMRC often view a failed project as more corroborating evidence of R&D work carried out. Ultimately this is more likely to qualify and at least allow a company to recoup some of the costs it has laid out.

2. Profitable companies are the only ones eligible Only companies that are in profit can claim. FALSE

Companies often extend themselves to complete a project and in many circumstances this means they aren’t in profit. This can relate to a variety of reasons such as reduced turnover, increased spending in investing within the business or unforeseen costs. It is a severe mistake to think this means you will not qualify. The criteria for claiming R&D tax credits are unchanged and in these instances it would be a greater benefit to apply and claim your maximum benefit to either reduce your corporation bill with tax relief and in some instances you can claim a tax credit.

SMEs that have made a loss can claim an enhanced amount of 230% of the R&D expenditure. Ask us more about the eligible amounts.

3. You hired a sub-contractor to complete your project so you cant claim. FALSE

If your project requires outsourcing to sub-contractors for specific skills or machinery, you will still qualify as the project is for the benefit of your UK limited company.

There are specific terms surrounding this and you can currently claim up to 65% of their costs within the projects you are claiming for. It depends on your companies size and this is particularly beneficial to companies with fewer than 500 members of staff.

4. R&D tax relief is only conducted by scientists in white lab coats. FALSE

The criteria for R&D Tax Credits is wide and varied and simply needs to demonstrate that an appreciable improvement has been made. You may have made a new drug which will revolustise the market, created a gluten free cookie recipe or perhaps you have automated or combined your internal software processes with some bespoke coding. The possibilities are endless! The R&D tax relief incentive is open to all UK limited companies no matter what sector they are in.

5. Making a claim is quick and easy and anyone can do it. FALSE – Seek professional help to avoid pitfalls.

Technically anyone can submit a claim and HMRC will review the information provided. Without correctly amending or submitting a CT600 tax return and the essential documentation which accompanies this claim you will however encounter difficulties and further investigation from HMRC.

The legislation is extensive and ever evolving. To go it alone is possible and brave. You may succeed and complete an accurate claim. The likelihood however is that you will not claim for everything eligible and potentially miss out on thousands of pounds or you have to face an enquiry from HMRC and justify everything you have submitted.

If your calculations are incorrect, you use the wrong language and terms in your application or miss something entirely, HMRC will take a dim view of this and require an in depth explanation and could possibly reduce or refuse your claim.

The facts detailed in a report produced by Counting King will show all the key information HMRC need to grant your claim swiftly. Its fast, efficient and stress free.

How Counting King can help your limited company

We are a specialist tax advisory firm dedicated to finding clients the most efficient, legal and trustworthy services and incentives on the market. If you have any questions regarding your R&D Tax Credit application then we are here on standby to help.

We can walk you through the entire application process so you are constantly up to date and understand what the next step is. We conduct all the work for you so you don’t have to worry about a thing.

Counting King are R&D Tax Credit Consultants based in Manchester, UK but are happy and keen to work with all UK limited companies no matter where you are based.

If you think you may be eligible then please contact us by message or call 0161 399 0152. We look forward to working with you soon.

R&D Tax Credit Claims Manchester

Manchester is the capital of the Northern Powerhouse and as such you wouldn’t be surprised to know that it is teaming with innovation! As an example Graphene was discovered in manchester and its applications are being tested daily to enhance polymers and other materials regularly with great commerical success.

Situations like this stimulate the economy and have tremendous effects, this is one of the main reasons the government first implemented the R&D tax incentive.

If you are based in the Greater Manchester area and would like to grab a coffee and discuss your project idea, your fledgling company or if you are innovating daily with your established business we can help you obtain this tax credit or implement this tax relief so your company can continue to grow and prosper.

Contact us today by calling 0161 399 0152!