Claiming Research & Development Tax Credits

1. Claiming Research & Development Tax Credits The ability to claim research & development (R&D) tax credits is a rarely mentioned benefit open to virtually any business, with the only requirement being that the work involves either research or development within the company’s field. Surprisingly, it can even be claimed on projects that were unsuccessful in a company’s endeavours. Ultimately, R&D tax claims through HMRC are a fantastic source for companies to generate cash for investing in further R&D, recruitment and more growth. Checking that a Business is Eligible To be able to claim R&D tax credits, there are three key items which must be adhered to. Firstly, a business must be classed as a limited company based within the UK that pays Corporation Tax. The limited company must also have carried out qualifying R&D activities which have cost the company money to do so. Defining R&D Activities R&D can take place in any sector and the criteria set by HMRC is kept as intentionally broad. If a company is attempting to ‘resolve scientific or technological uncertainties’ within its

2. sector then it is likely to be carrying out eligible R&D activities. These activities can be through either existing products, processes or services (by modification of them) or through the creation of new products, processes or services. Even if a company is unsure of whether a project is possible, or how to achieve it, they could be contributing to R&D in this way. Likewise, if a project is unsuccessful then this could still be claimed for. Additionally, work done for a client can also be claimed for. The beginning of an R&D activity is classed as when the initial project begins, with the end being when any conclusions to this project have been made. Bearing this in mind, any marketing or user-testing following the realisation are not classed as R&D activities. Projects which will not be defined as R&D activities involve the copying of existing products, processes or services, along with any cosmetic or aesthetic changes. Although, if a company was to use technology in order to create cosmetic or aesthetic modifications then this may still qualify. If you are still unsure as to whether a project would be eligible for claiming R&D relief then there are many companies which offer aid with looking into this, providing a seamless, innovative way to claim innovation tax relief, including Areande which can provide a comprehensive service whereby they will liaise with HMRC on your behalf. Specific Costs that Qualify for R&D Tax Claims Running a business includes a multitude of operational costs, and many of these are directly eligible for claiming back as R&D expenditure. These include the following: - Staffing costs - Subcontracted R&D - Externally provided workers - Consumables (including water, fuel, and power) - Software - Payments to the subjects of clinical trials The last example is linked almost exclusively to the pharmaceutical industry; however, the others can be from any sector providing that R&D activities are being carried out. Types of R&D Tax Claims Depending on the size of a business, and whether an R&D project has been subcontracted, there are two main types of R&D relief available to be claimed. These are: - R&D Expenditure Credit (RDEC) - Small and medium sized enterprises (SME) R&D relief

3. RDEC is a tax credit available to both large and SME companies. It is a scheme largely aimed at large companies; although if a SME is subcontracted to do R&D work by a large company then they will also be eligible to claim this type of relief. From the first of April this year, it involves a rebate of 13% of any qualifying R&D expenditure. SME R&D relief is available to SMEs with less than 500 employees and either a turnover of under 100 million euros, or a balance sheet total under 86 million euros. Linked companies and partnerships also need to be considered when seeing if a business is a SME. This form of R&D relief allows companies to subtract an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total 230% deduction. The business can also claim a tax credit if it is loss making, worth up to 14.5% of the loss. Conclusion R&D tax claims are a great way in which companies can claim back on expenditure which they might not have been aware of before. There are companies which can aid in the overall process of claiming back this form of tax, such as Areande, making it a stress-free process for companies. In short, there is no reason why you shouldn’t be looking into whether or not you can get a return on investment today.