If your company carries out research and development, you may be surprised to learn you can qualify for R&D tax relief.
R&D tax relief is a financial incentive offered by the government to encourage British businesses to innovate, through new research and development (R&D) projects.
It can provide a valuable source of funding, but many companies fail to apply – either because they don’t know about it, or because they think they’ll have to jump through too many hoops to get there. However, it’s easier to claim than you might think. We’re here to tell you how.
If you qualify for R&D tax relief, you can reduce your tax bill or claim payable cash credits as a proportion of your R&D expenditure.
The definitions of eligible R&D and eligible costs are reasonably broad. Eligible R&D activities often take place across the whole range of company operations.
The term R&D is used to describe any activity that aims to advance knowledge or capability in science or technology. This may include:
Any business carrying out R&D can apply for R&D relief.
When applying, you’ll need to ask yourself the following:
1. What is the scientific or technological advance?
To qualify for R&D tax relief you need to operate in a scientific field and be able to demonstrate your aim to make a scientific or technological advance.
Rather than focusing on the product or process you’re developing, think about how that product or process benefits the wider scientific community. It’s not enough for a product to be commercially innovative – it must advance scientific and technological knowledge and development.
2. What scientific or technological uncertainties have you encountered?
To qualify for R&D tax relief, you’ll need to demonstrate you’ve achieved something new or innovative. The project you’re working on should attempt to solve a scientific or technological uncertainty that competent professionals working in the field can’t readily resolve, and where solutions aren’t common knowledge.
3. How and when did you overcome these uncertainties?
What methods did you use to overcome the uncertainties, and what investigations and analysis did you carry out in the process?
How did your successes and failures impact on the project? Even if the product or project was a commercial failure – or you were unable to overcome scientific uncertainties – you may still be eligible for R&D tax relief.
4. Why does your idea require development? Why isn’t the knowledge you’re working towards readily available
This is your change to demonstrate how innovative your idea is, and why it isn’t achievable by just anyone. Perhaps you’re aware that others have tried and failed to implement your idea – or maybe they’re achieved it, but the results of their efforts aren’t in the public domain.
Either way, it’s up to you to prove a valid technological uncertainty, and that the people who are working on the project are competent professionals, working in the relevant field.
You can claim R&D tax relief if you’re an SME with:
If your company is funded by external investors, this may affect your SME status.
If you do qualify for SME R&D tax relief, you will be able to:
If this is your first R&D claim, you may be eligible for Advance Assurance. Qualifying for Advance Assurance means any R&D claims you go on to make during the first three accounting periods are guaranteed to be accepted (as long as they reflect the information you provided). Your accountant can provide support with Advance Assurance if you need it.
AccounTech Professional exists to help IT businesses get ahead – and stay ahead – of the competition. We provide a complete accountancy service to help your business get from where you are now, to where you need to be.
Need support applying for R&D tax relief? Got questions about eligibility? Email
activate@accountechprofessional.co.uk. We’re here to help.
Cole Accounting Ltd.