What are research and development tax credits?
Research and development (R&D) tax credits are a government tax incentive for UK companies, especially small and medium sized enterprises (SMEs), designed to encourage investment in innovative products, processes and services.
The government announced in March 2017 at the Spring Budget its commitment to R&D tax incentives going forward, which is particularly helpful and reassuring post Brexit. There will be an additional £4.7 billion invested by 2020-21, which will include improving awareness of the R&D scheme amongst SMEs, as it is widely accepted by HM Revenue and Customs (HMRC) that only a small proportion of SMEs undertaking qualifying R&D have claimed the tax relief. This represents a significant opportunity for SMEs undertaking innovative activities that have yet to claim R&D tax credits.
What is it worth?
R&D tax credits are extremely valuable for SMEs and are worth the equivalent of up to 33% of a company’s R&D expenditure being available as a cash repayment from HMRC or reductions of tax bills.
What type of work qualifies for R&D?
Whilst the Government plans to increase certainty and simplicity around making R&D claims, currently HMRCs R&D conditions are very broad. Therefore, SMEs in most sectors and industries can potentially qualify for R&D tax relief.
If you are not sure if the project you are undertaking is scientifically or technologically feasible or you don’t know how to achieve the desired outcome, it is likely that your project will qualify for R&D tax relief. This is even the case where you have incurred expenditure but your project has not been successful.
The type of project work could include creating new products, services or in-house processes. It could also include significantly changing or adapting your current products, services or processes.
Basically, if you are doing something that your competitors are not doing and would be impressed by, there is a reasonable chance that it could qualify as an R&D activity.
What costs qualify?
The main cost is usually the salaries of people engaged in the R&D activity, including employer’s national insurance and any pension contributions. Other allowable costs typically include consumables, sub-contractor’s costs, software and some utility costs if these can be directly related to the R&D activities.
How we can help?
Here at PM+M we have a wealth of R&D experience and have made hundreds of successful claims on behalf of our clients. Each client and R&D project is unique, so at PM+M we offer a no obligation meeting with a member of our tax team. This allows us to understand your business and the type of project(s) you are working on, with a view to assisting you in starting to identify any qualifying R&D activities.
Below is a summary of our most recent R&D claims made on behalf of our clients:
- Mattress manufacturer – unique mattress designs improving comfort and reducing heat retention. This claim resulted in a £50,000 tax refund from HMRC.
- Classic Car Company – the company redesigned a continuation model of a 1950’s racing car which involved a complete overhaul of the internal setup of the car for safety purposes and making it road worthy. The claim resulted in a £60,000 tax refund from HMRC.
If you would like to discuss R&D or if you have questions, please contact Jonathan Cunningham (firstname.lastname@example.org) or Claire Astley (email@example.com)