In the UK, R&D tax credits are a way for the government to incentivise a wide array of businesses across many industries. Since the launch of this tax policy in 2000, Government spending has been over £40 billion in tax relief and cash credits. Find out if you are eligible to claim research and development tax credits, how to claim them, and what you need to be aware of in this guide.
Here’s how it works: In business, Research and Development occurs when a project looks to advance knowledge in science or technology and it is worth noting that the project doesn’t need to be successful to qualify, it just needs to aim to research or develop and advance in your field.
When a company invests time and money in innovative activity, the Government wants to support that and because R&D so greatly improves a country’s economic output, the Government wants to encourage businesses to keep doing this. They do so by reimbursing them some of the expenditure used on those activities. This relief is called a tax credit, and it’s a brilliant incentive enabling businesses to reinvest and grow.
R&D tax credits can only be claimed at the end of your fiscal year and it is worth noting that HMRC must receive your Additional Information Form (AIF) before you submit your CT600.
Whilst HMRC aims to repay within 28 days, the reality is it can take months. Some companies are heavily reliant on this relief to maintain their cash flow and others look to use the R&D tax credit to reinvest in their projects, both of which can be very time-sensitive. Because of this more and more innovative businesses are choosing to take out a Research & Development tax credit loan whilst they wait for HMRC to process their claim.
UK R&D tax credits are for limited companies that spend money on innovative projects, developing new or existing products, processes, or services. Companies from all sectors that invest in innovation can make an R&D tax credit claim to reduce their Corporation Tax or receive a cash rebate. Typically, it’s for:
The scheme’s definition has been intentionally kept broad to cover as many industries as possible, and is not only limited to Scientific Research Organizations. Even if you don’t think that you qualify, it may want to seek advice, in case you do.
What counts as a qualified R&D expense? You can use Research & Development tax credits to claim for anything that was used for qualified research activities. This includes:
You can not use R&D tax credits to claim for:
Confirm that your activities qualify for R&D tax credits. These typically include work that seeks to advance knowledge or capabilities in a field of science or technology, however, it is best to consult with a tax professional about the specific R&D tax credit regulations that may apply to you.
Pinpoint the specific projects or activities within your business that qualify for R&D tax credits. These projects in some way should have:
Maintain detailed records of your R&D activities and associated expenses. This documentation is crucial for substantiating your claim and demonstrating the innovative nature of the work.
It’s important to work with a tax advisor, R&D specialist or accounting professional familiar with UK tax laws and R&D tax credits to ensure accurate and compliant completion of these forms and supporting documentation. They can guide you through the process and help optimize your R&D tax credit claim.
Once your claim is approved, you will receive the R&D tax credits or incentives, which could be in the form of reduced taxes or a direct monetary benefit. But note- this may take some time. If you prefer not to wait, you can get an R&D tax credit loan to access the money now, and pay back once received.
Companies are either classed as SMEs (small and medium businesses) or large companies.
There is a significant difference between R&D tax credits for Small and Medium-sized Enterprises (SMEs) and large companies, including
The government announced in the 2023 Autumn Statement that from the 1st of April 2024, the SME and RDEC Schemes will be merged in a bid to streamline processes, prevent fraudulent claims and improve the overall costs that are incurred.
Large Companies: The RDEC cash credit is subject to a cap based on the PAYE and NIC paid to HMRC within the claim period. Any remaining cash credits in excess of the cap can be carried forward for use in future periods.
It is essential that you follow the correct processes before trying to get tax relief. If you don’t, your claim might not be accepted:
R&D tax credit loans are a financial service that allows businesses to access the value of their anticipated Research and Development tax credits before they receive them from the government. It is not uncommon for there to be delays in HMRC processing claims and this can inevitably cause problems for some companies for a variety of reasons.
That’s where R&D tax credit loans come in. Instead of waiting, lenders can advance the money to you within a matter of days. The business will work with the lender to get a loan based on the expected amount of tax credits they’ll receive, based on the tax computations and other supporting due diligence. Once HMRC processes, approves and pays your tax credits, the loan you received is paid back to the lender.
This benefits and supports businesses in getting access to funds they’ve earned through their innovative work, allowing them to reinvest in their operations, research more, or expand their business without waiting for the HMRC. It’s a way to keep the momentum of innovation going without delays.