If you are investing in your business and its growth, you may be looking for ways to raise investment or help out with the costs of doing so. Business owners can apply for different tax allowances and grants in the UK, and one such tax allowance is offered as part of a government scheme to boost innovation in the UK and is called R&D Tax Credits.
R&D tax credits help businesses invest in research and development activities that drive innovation and growth. In this blog, we’ll dive into the details of what they are, who is eligible to claim them, and how to apply for them. This guide aims to help you understand how R&D Tax relief can benefit your business, but if you need further assistance in claiming or understanding the tax relief speak to the team here at RJF Accounting.
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What Are R&D Tax Credits?
R&D Tax Credits are a government incentive created to boost R&D investment in the UK. They provide significant financial benefits and are a long-term opportunity for companies. Eligibility for R&D Tax Credits can apply to any efforts to push the boundaries of knowledge and capabilities in a technical field, such as finding new uses for existing technology, improving product or process efficiency, developing new products, services or ideas, and implementing safer, cleaner or more environmentally friendly practices.
What Are the Rates of R&D Tax Relief?
The amount of R&D expenses that can be claimed as tax credits depend on the scheme under which the claim is being made, either the SME or RDEC scheme. Under the SME scheme, companies can claim up to 33% of qualifying expenses if they are loss-making and a reduction in Corporation Tax liability of around 25% if they are profitable. On the other hand, under the RDEC scheme, the maximum claimable amount is 10.53% of qualifying expenses.
What Costs Qualify for R&D Tax Relief?
The costs associated with R&D tax credits vary based on the amount of qualifying R&D activity. This encompasses a range of roles, such as engineers, software architects, management, and support staff.
Qualifying expenditure for R&D includes:
- Salaries, including pension and bonuses
- Subcontractors (some restrictions apply)
- Consumables
- Utilities
- Externally Provided Workers (EPWs)
- Software
- Prototypes
What Projects Qualify R&D Tax Credits?
R&D encompasses a wide range of activities. R&D tax credits can be obtained by demonstrating that your company took a risk by investing in resolving a scientific or technological uncertainty. This incentive aims to reward companies for their efforts in advancing knowledge and capabilities, regardless of the industry they belong to.
A company must conduct R&D work in science or technology to be eligible. This includes traditional ‘white coat’ research and ‘brown coat’ development work in design and engineering that involves tackling challenging technological problems. The scheme’s definition of R&D is intentionally broad to cover activities across many industries.
It’s important to note that the project must be closely related to your company’s existing or planned trade. If your company is investing in R&D and overcoming uncertainties, it is on its way to claiming R&D tax credits.
How Do You Claim R&D Tax Relief?
R&D tax credits can be claimed by including them in your Company Tax Return (CT600) which is typically submitted annually and based on figures from your Company Accounts. You can apply for R&D tax relief for the past two accounting periods. For instance, if your accounting year end is December 31, 2022, you have until December 31, 2024, to submit your claim.
How Can RJF Accounting Help?
RJF Accounting is a dedicated team of accountants that thrive on helping our clients make the most out of tax allowances and R&D Tax Credits. We can help you calculate your credits and assist with the application to give you the best chance of having them approved.
We can assist with much more too! Everything from investor relations to tax advice and everything in between! We have helped launch startups, create new business opportunities and even helped businesses save thousands of pounds by assisting them to spot cost savings.
If you plan to submit an R&D Tax Credit Application or are looking for other growth opportunities, why not speak to the team today? You can call the team on 0161 5040629 or email us at hello@rjf.uk.com to see if we can help you get your plans off the ground! We are open Monday to Friday, 9 am – 5 pm!