Research & Development Tax Relief

An Introduction to R&D Tax Credits

Research and Development Tax Relief is a government incentive designed to make innovation easier for small companies. Companies can derive significant cash benefits directly linked to the level of qualifying expenditure their R&D activities have incurred.  Since the scheme's inception in 2000, over 300,000 R&D tax credit claims have been submitted to HMRC, with over £33.3bn successfully recovered in tax relief over this period. The average claim value currently stands at £57,000 for SMEs and £332,000 for large companies.

How do R&D Tax Credits work?

Companies have two years from the end of their accounting period to make, or amend, an R&D claim so there is often scope for companies to derive significant immediate cash benefits. R&D can generally be thought of as work undertaken to develop new, or improved, products or processes. For example, developing an automated process, or one that is quicker, more efficient or creates less waste etc. may potentially qualify. 

There are a range of qualifying categories of expense, including staffing costs, contracted out activities, EPWs (for instance, agency workers), consumables, computer software, utilities and payments to the subjects of clinical trials. However, knowing that staffing costs qualify is the easy part. The complexity in preparing a claim involves, for example, identifying all employees involved within the R&D process and establishing the correct proportion of time they were engaged in qualifying activities. 

Preparing a standard R&D claim is far from complicated, but unless a company takes proper, experienced advice they risk losing out on cash benefits to which they are entitled. The real added value lies in identifying all R&D projects undertaken (including work on processes), all qualifying activities, all employees involved, and all other qualifying expenditure incurred. The documentation submitted to HMRC in support of a claim is vital. This helps HMRC to determine whether a company’s activities qualify and therefore a company needs to ensure that the R&D Report contains the required information.

Talk to the team about R&D Tax credits today