What are R&D Tax Credits?
R&D tax credits are a government scheme introduced to encourage innovation in the UK. They are a tax relief that may reduce your Corporation Tax bill and/or result in a payable tax credit.
Who is eligible?
Limited companies in the UK that are subject to Corporation Tax and that have undertaken qualifying research and development activities.
What are the benefits?
Small and medium-sized companies (fewer than 500 employees and either not more than €100 million turnover or €86 million gross assets) can receive tax relief of up to 230% on their qualifying R&D costs.
If a company is loss making, they can claim a payable tax credit worth up to 14.5% of their surrenderable loss – this now has a cap of up to 300% of the companies combined PAYE and NIC liabilities, plus £20,000.
Larger companies can claim under a separate RDEC scheme, with credits worth 13% of qualifying costs.
What qualifies as R&D?
A lot of farmers and rural business owners are missing out on valuable tax savings because they think their projects do not qualify as R&D. The truth is that a lot of businesses are engaged in qualifying R&D projects and could benefit from talking to an R&D specialist.
The claim period is two years from the end of your accounting period. This means that businesses not currently claiming tax credits could be eligible for two claims, as well as incurring qualifying expenditure in their current financial period.
Grant aid can affect claims. If you are considering an R&D project then it is best to speak to an advisor before grant aid is received, as this could reduce your claim if not structured correctly.
What should I do if I think I am undertaking R&D?
Speak to an advisor. Any initial discussion should not incur any fees and they can advise whether your operations include any qualifying expenditure.
Keep accurate records. Recording costs, keeping copies of invoices, maintaining timesheets, and documenting projects are all key in supporting qualifying claims.
N.B. All rates and figures quoted relate to the 2021/22 tax year.
R&D tax credits are a government scheme introduced to encourage innovation in the UK. They are a tax relief that may reduce your Corporation Tax bill and/or result in a payable tax credit.
Who is eligible?
Limited companies in the UK that are subject to Corporation Tax and that have undertaken qualifying research and development activities.
What are the benefits?
Small and medium-sized companies (fewer than 500 employees and either not more than €100 million turnover or €86 million gross assets) can receive tax relief of up to 230% on their qualifying R&D costs.
If a company is loss making, they can claim a payable tax credit worth up to 14.5% of their surrenderable loss – this now has a cap of up to 300% of the companies combined PAYE and NIC liabilities, plus £20,000.
Larger companies can claim under a separate RDEC scheme, with credits worth 13% of qualifying costs.
What qualifies as R&D?
- You may research or develop a new process, product, or service, or improve an existing one.
- The project must aim to create an advance in the overall field, not just for your business.
- The project must relate to an existing trade or one you intend to start following the R&D.
- Projects can still be an advance if being developed elsewhere, but it is not publicly known or available.
- Staff costs, including salaries, Employer’s NIC, pension contributions and reimbursed expenses.
- Subcontractors and freelancers.
- Materials and consumables, including heat, light and power that are used up or transformed during the R&D process.
- Some types of software.
- Developing new production systems, aimed at increasing yields or creating labour efficiencies.
- Creating new varieties of crops or fruit to combat pests or weather conditions.
- Designing automated machinery for harvesting.
- Feeding trials by developing new feeds, the timing of feed and/or ration timing.
- Improving animal health and welfare.
- Waste reduction processes.
- Automated packing systems.
A lot of farmers and rural business owners are missing out on valuable tax savings because they think their projects do not qualify as R&D. The truth is that a lot of businesses are engaged in qualifying R&D projects and could benefit from talking to an R&D specialist.
The claim period is two years from the end of your accounting period. This means that businesses not currently claiming tax credits could be eligible for two claims, as well as incurring qualifying expenditure in their current financial period.
Grant aid can affect claims. If you are considering an R&D project then it is best to speak to an advisor before grant aid is received, as this could reduce your claim if not structured correctly.
What should I do if I think I am undertaking R&D?
Speak to an advisor. Any initial discussion should not incur any fees and they can advise whether your operations include any qualifying expenditure.
Keep accurate records. Recording costs, keeping copies of invoices, maintaining timesheets, and documenting projects are all key in supporting qualifying claims.
N.B. All rates and figures quoted relate to the 2021/22 tax year.
