R&D Tax Credits

The work must be part of a project with the aim of making an advance in science or technology. It must relate to the company’s trade, or a trade the company intends to commence. 

Common examples of projects that may qualify include:

• Innovative methods of capturing, transmitting, manipulating, and protecting data;
• State-of-the-art software for new projects, or new functionality for existing R&D projects;
• Improvements to programming language;
• Designing, constructing, and testing product prototypes;
• New methods of capturing, utilising or communicating data;
• Developing processes that would meet increasing regulatory requirements; or,
• Streamlining manufacturing processes through automation.

Qualifying expenditure on a project includes the following:

• Salaries, employer’s NICs and pension contributions
• Subcontractors (restricted to 65% unless connected)
• Software (if certain criteria are met)
• Materials and consumables including utilities

As mentioned above, under the SME scheme, a company can deduct either 230% or 186% of its qualifying expenditure from profits, dependant on the claim period. As such, an extra 130% or 86% is deducted from taxable profits in the corporation tax computation because 100% of the cost will have been deducted in the profit and loss account.

For accounting periods beginning on or after 1 April 2021, the payable R&D tax credit that a loss-making SME can receive will be capped at £20,000 plus 300% of its total Pay as you Earn (PAYE) and National Insurance Contributions (NICs) liability for the period. The cap therefore does not apply for companies whose payable credits is not more than £20,000.

A company is exempt from the cap if:

• the claimant company’s employees are creating, preparing to create, or actively managing Intellectual Property (IP);
• it does not spend more than 15% of its qualifying R&D expenditure on subcontracting R&D to, or the provision of externally provided workers (EPWs) by, connected persons.

R&D tax credits are claimed in the Company Tax Return and take the form of a deduction in corporation tax. Because LLPs do not pay corporation tax or file a Company Tax Return, they cannot claim R&D tax credits.

R&D tax credits are claimed in the Company Tax Return which is filed with HMRC each year.

As mentioned prior there are now additional documents required depending on the circumstances surrounding your claim.

If you are unsure what documentation your company’s claim requires, please get in touch.

The Company Tax Return can be amended to include a claim for up to 2 years after the end of the accounting period. For example, the return covering the year 1 January 2022-31 December 2022 must be filed by 31 December 2023 but can be amended until 31 December 2025.

Once 24 months has elapsed following the end of the accounting period, it is no longer possible to make a claim for R&D tax credits because the Company Tax Return can no longer be amended.

To qualify for R&D tax credits, your project must seek to overcome an uncertainty in science or technology. You may be aiming to create a new product or process or changing and developing an existing project or service.

You must be able to explain what the uncertainty was, why the uncertainty existed, how you attempted to overcome the uncertainty, and why the knowledge was not already available from an expert in the field.

Clients can outsource the entire process to us, making it as straightforward and seamless as possible.

Our combined tax, legal, and accounting professionals will build and evaluate your R&D claim to maximise the relief available. We deal with everything from start to finish, including HMRC approval, the drafting of documents including, but not limited to, the claim, accompanying report, and submission of the finalised paperwork.