Is your business eligible for R&D tax credits?
If you’ve heard about Research and Development Tax Credits and are wondering if your business is eligible then look no further – we’ve got five great tips here to help you. This not-so-secret awesome tax initiative deserves to be shared far and wide, so why not take it one step further and get the low down on whether you are eligible to claim R&D Tax Credits.
Your business has to be UK registered, or have a branch trading and paying UK tax. R&D Tax Credits is a UK initiative so only companies which are UK registered or have a UK branch can claim them.
You must have spent, or be spending, money on research and development. This is the big one and is a Pandora’s Box in terms of explaining the nuances of which R&D costs qualify (for example, you can claim for a proportion of your developers’ time spent on a project but HMRC has deemed the essential hosting costs as unclaimable). Eligible expenditures change year-on-year and it can be hard to keep up with qualifying costs, but in broad summary, the main qualifying costs are:
- Direct labour: employees paid directly by the company (e.g. on the payroll, in the UK or elsewhere) to work on the project.
- External staff: staff hired from an external staff provider, but directly employed on the project.
- Subcontracted R&D: parts of the project that have been extracted and parcelled out to a subcontractor, typically with a specification for what needs to be delivered and a subcontractor agreement or contract.
- R&D Consumables: things that were consumed in the R&D (this could range from materials used in creating a prototype, to software licenses … even to food consumed in solving or developing a new innovative way of scaling production).
As well as spending money on qualifying expenditure, you should also ensure your project is qualifying – see Tip #5 for more information.
There are actually two different R&D Tax Credit schemes. The size of your company and your turnover affects which one of these you are eligible for.
- The SME scheme. This is typically more lucrative as the government wants to reward smaller companies – find out whether your company qualifies as an SME here.
- The RDEC scheme (RDEC stands for Research and Development Expenditure Credit), which used to be the retired large company scheme and is particularly important if you have received other notified state aid.
One of the best features of the initiative is that you can claim R&D Tax Credits whether you are profitable or not. In fact, the scheme is often more lucrative the less profitable you are, so if you were worried that you wouldn’t be eligible because you’re not in profit, worry no more and get claiming.
Linked to the qualifying expenditure, you must also have a qualifying project. In the HMRC jargon you could (almost) grow to love, a project is qualifying if it “solves technical uncertainty”. This means that you will have built a process, system or prototype which involved a high level of complexity, but the rules aren’t always clear-cut. Developing a cure for cancer obviously qualifies. Setting up a WordPress blog does not. For everything in between, it depends on a number of factors, including presentation.
The presentation of your project is most affected by the supporting technical narrative (the second part of the R&D Tax Credits application, the first being the financials), so be sure to assemble the skeleton structure of which projects to include so you make your application as strong as possible.
If you follow the above tips, you can be pretty sure whether you are eligible to claim for R&D Tax Credits. Of course, this is not an exhaustive list but it’s a darn good guideline to figuring out where you stand before you begin your application.
Remember, you can either use a specialist provider like GrantTree who knows the scheme inside out or file R&D Tax Credits yourself, but be sure to swot up on the ins and outs of the scheme to make sure you are claiming for the right things in the right way and if you ever need advice, get in touch!
GrantTree is a team of government funding specialists who enable people and businesses to fulfil their potential. They provide access to government funding through grant and R&D Tax Credit support, advice and solutions so they can enable businesses – and the people within them – to grow. Since 2010, they’ve helped over 500 businesses benefit from more than £30m of government funding. Find out more at www.granttree.co.uk.