What is R&D tax relief?
What is R&D tax relief?
Research and Development tax credits can be hard to come to grips with, both for businesses and for accountants. That is probably the number one reason so many UK businesses fail to take full advantage of them – essentially leaving millions in tax relief on the table every year.
The Research and Development Tax Relief Scheme was introduced by the UK Government in 2000. For 18 years, it has been available to companies of all sizes, though as we said it has been terribly under-utilised. The scheme was created to encourage innovation and keep the UK competitive on a global scale. It is supposed to help companies to reclaim money invested in qualifying research and development.
Is it really worth that much money?
The average claim size for the SME scheme in 2015/16 was in excess £47,000! Some were much smaller, of course, but many were substantially more.
The R&D Tax Relief Scheme does actually work, but it can be tricky to execute. But then again, that’s where TEQ Group comes in. R&D Tax Credits are the single biggest boost for business the UK Government offers at the moment. The government actively wants companies to claim it as well. If there has been any kind of failure, it is in getting the word out about just how much tax relief this could entitle the UK’s companies to.
OK… but how does it work?
You see, the R&D Tax Credits scheme was designed to reward businesses for solving problems and sharing their solutions. Whenever you spend money on a project that qualifies, you could receive a cash reward or a reduction in the amount of Corporation Tax you’re paying. If you are a small or medium-sized enterprise (SME), then that reduction can be up to 230% of your qualifying costs.
How it actually works for any one business depends mostly on its size.
There are two schemes:
- The SME scheme for businesses with fewer than 500 staff and less than either €100m turnover or €86m gross assets.
- The Large Company scheme, known as Research & Development Expenditure Credit (RDEC), for businesses with more than 500 staff or more than €100m turnover and €86m gross assets.
If your business is a profitable SME you can expect about 26% of your R&D costs to be refunded. If it’s a loss-making SME, you can expect about 33% back. If you are only breaking even, you might only get 15% back – but that could still be quite a lot of money.
If the business is a Large Company doing R&D,you can typically get up to 10% of your R&D costs back, regardless of profitability.
What costs can you actually claim for?
That all depends on how you do business. As we said, it takes an expert to identify all of the eligible expenses sometimes. In general, though, we start by looking for expenditures like these:
- Staff salaries, employer’s NIC and pension contributions
- Expenditure on subcontractors (Note, this only applies to companies filing as SMEs)
- Salaries or costs for Externally Provided Workers
- The cost of R&D related materials or consumables (This includes heat, light and power)
- The cost of certain types of software or software licenses
- Payments to the subjects of clinical trials
- Contributions to individuals or organisations carrying out research (Note, this only applies to companies filing as Large Companies)
…but of course, that is just the beginning.
TEQ Group’s bread and butter is finding the unexpected, the hidden and the forgotten qualifying expenses.
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TEQ Group is a trading name of Davrae Ltd, Registered in England: 08003906