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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.

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 Credits –Developed or improved a new system?

You have to speculate to accumulate is the saying… and with research and development tax credits it couldn’t be any more true!

If you don’t put in the time and effort to properly prepare your R&D tax credits claim, you may fall through a trapdoor into a series of HMRC enquiries into your claim. You can expect a long and not so nice letter from the HMRC R&D unit, with a long list of questions as well as a request for evidential justification to support your claim.

Submitting an R&D tax credit claim is great if for your project and overall business, but if you get it wrong it could be extremely costly in the long run. HMRC will not hesitate to send you an enquiry and go through your finances with a fine tooth-comb. It will be a long list of invasive questions and requests for evidence to justify your claim.

Once an enquiry begins you can expect HMRC to play hardball and their stance is very tough. It will be an uphill climb to prove your claim is successful.

We want you to submit your R&D tax credit claim for a project which really is an advancement in science or technology. By partnering with a specialist, we can layout the evidence and information in a format which HMRC approves of. Not only this, we will provide the facts and figures in a way which your accountant will love.

Sometimes research and development can be obvious, and other times you wouldn’t expect it to qualify. It is all about understanding the legislation and ensuring you submit claims with eligible costs the way the incentive was designed. HMRC enquiries will only delay your claim and take up unnecessary effort, we recommend the following 5 top steps to take when preparing an R&D tax credits claim.

1. Support your R&D tax credit claim with a technical report and provide this to HMRC

  • It isn’t strictly part of the legislation as a mandatory requirement, however HMRC have a team of experts who review the claims. By not submitting a report, you encourage the risk for HMRC to question your claim in depth which is unwanted and sometimes unnecessary work.

2. The R&D technical report needs to provide an outline of the project and answer the following questions:

  • What was the driver for the project? Market need, appreciable improvement or was there nothing else like it?
  • What kind of challenges did the project face. Was there technical uncertainty which required additional resources and planning to overcome? Would this advance science or technology?
  • Is this new knowledge available from an “off the shelf” solution or is this bespoke to your company and situation?

3. Record R&D effectively on an ongoing basis

  • Recording each and every persons involvement who is directly engaged in the R&D project, it could be development, meetings, testing etc. Making sure we identify all qualifying expenditure helps to maximise your claim.

4. Make sure you submit your R&D tax claim on time and don’t leave it to the last minute.

  • A business can make claim for R&D tax relief going back 2 accounting years. The claim can be made in a company tax return or in an amendment to it. You have up to 9 months after your year end to submit an amendment so it is crucial you do not miss this deadline otherwise you could lose thousands.

5. Choose your R&C partner carefully. Lack of knowledge, experience and resources can mean you will be worse off, not them.

  • Choose a reputable firm who specialise in Research and Development tax credits. They will enhance your claim, ensure everything that is eligible is included and guide you for future projects. Specialists will either have a niche sector or be able to apply knowledge or similar projects to your own so you get the best possible outcome.

Do you qualify for R&D Tax Credits?

HMRC started this incentive for R&D Tax Credits / Relief in the year 2000 and it has grown from strength to strength. If you are UK limited company who has conducted some form of innovative work, you could be eligible!

Providing a project contains a level of technological or scientific uncertainty and must seek to achieve an advancement in technology. If the team involved with a project were scratching their heads to find a solution to technological challenges, that’s a good indication that qualifying Research and Development activities were taking place.

If you’d like more information on R&D tax credits, please get in touch today!

Manchester R&D Tax Credits Software Companies

Manchester Software Companies Are Missing Out On R&D Tax Credits!

Are you a software company in Manchester who has helped a create a bespoke piece of software? Did you know you are most likely to qualify for HMRC’s R&D Tax Credit incentive? 100’s of companies in Manchester could be claiming their R&D tax credits and developing their innovative companies but navigating the minefield of legislation can be tough!

Web Developers, Digital Agencies, App Development companies and many more would most likely qualify.