If your company carries out research and development then you may be eligible for R&D tax credits, which can reduce your tax bill or increase taxable losses.
If your company makes a loss on qualifying R&D expenditure, you can choose to ‘surrender’ or ‘cash-in’ losses that derive from an HMRC claim. HMRC will then ‘repay’ the surrendered losses as a cash R&D tax credit, instead of your company having to carry forward a loss. There are different schemes tailored to different business types that maximises your returns.
The SME R&D tax relief scheme is for companies of less than 500 FTE staff that satisfies one of the following conditions: revenue less than €100m or balance sheet assets less than €86m. Under this scheme the rate of R&D tax relief can be as high as 26%. And loss making SMEs have the option to surrender some of their losses for a payable cash credit from HMRC.
The Large Company Scheme is for companies over 500 FTE staff, or with revenue greater than €100m and balance sheet assets greater than €86m. The rate for R&D tax relief for Large Companies is currently 130%.
The SME scheme has a rate of R&D expenditure tax relief as high as 230%, while the Large Company Scheme has a rate of 130%. This can mean you could be saving a fair amount on your tax bill.
A lot more companies are eligible for the UK Government’s R&D tax credits scheme to encourage and reward innovation than you might think.
Basically, you must be able to demonstrate to HMRC that the product or service you’re planning to include in your claim is truly innovative and, at a technological level, an advance on what’s currently available in the market.
According to HMRC, R&D for tax purposes is a project (or a component of a larger project), which “seeks to achieve an advance in science or technology [through] the resolution of scientific or technological uncertainty”. Encouragingly, R&D is still deemed to have taken place whether or not the project is actually successful; it’s the “seeking” that counts.
In summary, in HMRC’s eyes, you’re undertaking R&D when you’re: 1) overcoming technological uncertainties; 2) aimed at achieving an advance in technology; 3) which isn’t readily deducible by a competent professional.
If these conditions apply to your project, congratulations! You can claim R&D tax credits on its day-to-day costs and qualifying expenditure, including things like staff, subcontractors, materials, software and utilities.