What are R&D Tax Credits?

Research and Development (R&D) Tax Credits are a government tax relief with the aim of encouraging companies to invest in Research and Development.

If your company is spending money on developing new products, processes or services; or changing or modifying an existing one, they may qualify for R&D Tax Relief. The work must be part of a specific project to make an advance in science or technology, but this cannot be within a social science or a theoretical field such as pure maths. The project must relate to your company’s trade. This could either be an existing trade or one that you plan to start up based on the results of the Research and Development.

To qualify for R&D Tax Credits you need to:

  • Show that you looked for an advance in the Science and Technology field – not just an advance for your business
  • Show how you had to overcome uncertainty – your project should be something that isn’t known to be scientifically or technologically feasible when you make or discover it.
  • Explain how you tried to overcome this uncertainty – this can be a simple description of the successes and failures you had during the project.
  • Show how the project couldn’t be easily worked out by a professional in the field – you can do this by showing that other attempts to find a solution had failed.

There are two different types of R&D relief. Which type you may qualify for depends on the size of your company and whether the project has been subcontracted to you or not.

Small and medium sized enterprises (SME) R&D Relief

If you are a small or medium sized enterprise with less than 500 staff members and a turnover of under £100m or a balance sheet total under £86m, you can claim SME R&D relief.

This R&D relief will allow your company to deduct an extra 130% of your qualifying costs from the yearly profit, as well as the normal 100% deduction, which makes a total 230% deduction.

For example, if a business incurred £100,000 of R&D expenditure, the R&D relief will allow the business to deduct an extra 130% (£130,000) as well as the normal 100% deduction, making a total deduction of £230,000.

SME R&D relief also allows your company to claim a tax credit if the company is loss making, worth up to 14.5% of the surrenderable loss.

If the business is loss making, a R&D repayable tax credit of 14.5% of the surrenderable loss (£230,000 x 14.5% = £33,350) can be claimed.

Research and Development Expenditure Credit

If you are a large company, you can claim a Research and Development Expenditure Credit (RDEC) for working on R&D projects. RDEC can also be claimed by SMEs and large companies who have been subcontracted to do Research and Development work by a large company. The RDEC is a tax credit for 12% of your qualifying R&D expenditure.

Accounts Lab prepare a tried and tested R&D report that can stand up to scrutiny by HMRC, making the claims process low risk and hassle-free. We charge a fixed fee of 10% on a no-win no-fee basis. For more information on what we deliver, see our Research & Development page.