Knowing what projects you can or cannot get Research & Development (R&D) funding for is a minefield, with a plethora of different grants and funding support available. For example, recently, the Government announced that £365m of funding will be made available for new UK aerospace projects.
In addition to this, for many companies across a wide range of industries there is, of course, the opportunity to access R&D tax credits. These tax credits are extremely valuable and are often under claimed by qualifying businesses.
Under the SME scheme for small and medium-sized businesses, companies can receive a 230% tax deduction for their qualifying R&D expenditure. If this results in a trading loss for the year, then a cash payment can be claimed.
To qualify for the scheme, you must be classed as an SME under the rules of the scheme and carry out qualifying R&D activities.
Broadly, an SME is a company with no more than 500 full-time equivalent employees and either or both turnover less than €100m or balance sheet assets less than €86m.
There is a separate scheme for large companies which applies to the same types of activity but provides less generous tax reliefs.
What qualifies as an R&D activity?
The main areas are:
- Experimental work aimed at the discovery of new knowledge or advancement of existing knowledge
- Testing in search of product or process alternatives
- Design, construction and testing of pre-production prototypes and models
- Design of products, services, processes or systems involving new technology or substantially improving those already produced or installed.
It is important to think laterally about what your company is doing and whether it can fall into any of the above. We have succeeded with a number of claims where the initial response of the directors was that they didn’t think the company was really doing any R&D. It’s important not to overlook the fact that it can apply to new or improved systems and processes within the company as well as new products.
Once it has been established that a company is carrying out R&D and qualifies for the SME scheme, it is necessary to identify the qualifying expenditure on which a claim can be made. Qualifying expenditure can be defined as direct staff costs of people involved in the R&D activity, software and consumable items and externally provided workers.
Claims can be made to HMRC through the company’s corporation tax return and information should be provided containing details of the expenditure and of the qualifying activities. If you are unsure as to whether your company carries out qualifying activities, then small companies with turnover under £2 million can contact HMRC’s advance assurance scheme to discuss the project and get the green light to proceed ahead of making a claim.
For further information on the SME scheme, applying for advance assurance, the large company scheme or R&D allowances on capital expenditure please contact Jonathan Cunningham or Claire Astley at firstname.lastname@example.org or Claire.email@example.com or call 01254 679131.