2nd Aug 2022

R&D Tax Credits Explained: A Quick Guide

Dave Gibson picture

Dave Gibson

Co-Founder and CEO

Research and development (R&D) tax relief is something we talk to our clients about all the time.

It’s a great incentive designed to reward innovation across the UK. But a lot of SMEs are missing out simply because they don’t know they’re eligible. Read on to see if your project could qualify for tax relief through the scheme.

What are R&D Tax Credits?

Research and Development Tax Credits are a UK government scheme that gives you money back into your business, or off your corporation tax.

Under the scheme, research and development is defined as:

  • Activity that leads to the creation of new products, processes, or services.
  • Activity that results in improvement to existing products, processes or services.

If you’re completing R&D work, you’ll know that it’s all about trying to make advances and overcome uncertainty. So, you might have a problem with no existing solution, or there may be a situation where a solution exists, but it could be far better.

This is where you could look at making a claim.

Who can claim?

You need to be a registered UK limited company that’s eligible to pay corporation tax.

It’s not a sector specific incentive, whatever your business, you can make a claim, providing you’ve invested your own money into solving a technical challenge or advancing something. Even if your R&D project failed, you may still be able to claim for some of the costs.

You may also be eligible to claim R&D tax relief if you’ve worked on a project over the last two financial years and it’s ongoing.

The company must also be planning to continue trading for the foreseeable future, with no risk of imminent liquidation.

Which costs are eligible?

Eligible costs include:

  • Wages of people working on the R&D projects
  • Subcontractors
  • Software used for your project
  • Physical material needed for your project
  • Clinical trails
  • Cost of utilities used by your project

 What costs aren’t eligible

  • Cost of staff who carry out payroll for those who’re doing R&D
  • Marketing and branding
  • Cleaning and un-essential maintenance

3D Design on a Laptop Screen.

Making a claim

If you’re working towards an innovation, your project must aim to create an advance in the overall field, not just your business. You also have to explain why a professional couldn’t easily work out your advance for themselves. A good way to do this is by showing why historic attempts have failed.

You can’t claim if your company knew about the advance before starting the R&D work.

Your claim also needs to show that there was uncertainty before your development came in. To prove this, there must be no evidence to say that your solution was technologically possible before you introduced it.

So all in all, your claim needs to explain how you’ve tried to overcome the uncertainty you are/were facing, and show why it needed research and development.

Could your project be eligible?

If you think you may be completing work that’s eligible for R&D tax credits or you’d like to learn more about R&D, feel free to reach out!

We have a 100% success rate with R&D claims and in 2021 we completed 78 claims, saving an average of £55k per client!