Are You Eligible for R&D Tax Credits?
Research and development is crucial for businesses and for the UK economy as a whole. This was the reason that in 2000 the UK government introduced a system of R&D tax credits that can see businesses recoup the money paid out to conduct research and development and even a substantial amount on top of this. But how does a business know if it qualifies for this payment? And how much would the claim be for if it does qualify?
Examples of scientific or technological advances might include:
Tax credit basics
There are two bands for the R&D tax credit payment system that depends on the size and turnover of the business. These are classed as Small and Medium-sized Enterprises (SME) and as Large Company.
To be classed as an SME, a business must have less than 500 employees and either a balance sheet less than €86 million or an annual turnover of less than €100 million. Businesses bigger than this or with a higher turnover will be classed as a Large Company for the research tax credit purposes.
The biggest reason that businesses don’t claim for the R&D tax credit that they are able to is because they either don’t know that they can claim for it or that they don’t know if the work that they are doing can qualify.
Improvement in knowledge
Research and development must be in one of two areas to qualify for the credit – as either science or technology. According to the government, the research must be an ‘improvement in overall knowledge and capability in a technical field’.
Advancing the overall knowledge of capacity that we already have must be something that was not readily deducible – this means that it can’t be simply thought up and needs something kind of work to create the advance. R&D can have both tangible and intangible benefits such as a new or more efficient product or new knowledge or improvements to an existing system or product.
The research must use science of technology to duplicate the effect of an existing process, material, device, service or even a product in a new or ‘appreciably improved’ way. This means you may take an existing device and conduct a series of tests to make it substantially better than before and this would qualify as R&D.
Scientific or technological uncertainty
The other area that can qualify for the tax credit is termed as solving a scientific or technological uncertainty. Such an uncertainty exists when it is unknown whether something is either scientifically possible or technologically feasible. Therefore, work is required to solve this uncertainty and this can qualify for the tax credit.
The work needs to be carried out by competent, professionals working in the field. Work that improves, optimises or fine tunes without materially affecting the underlying technology don’t qualify under this section.
Receiving the tax credit
If the work carried out by the company qualifies under one of the criteria, then there are several things that the company can claim for based around the R&D work being done. The company must be a UK company to receive this and have spent the actual money being claimed in order to claim the tax credit.
Areas that can be claimed for under the scheme include:
Another factor to the tax credit is that it doesn’t need to be a success in order for the claim to be made. As long as the work qualifies under the criteria, then even if it isn’t a success, then the tax credit may be claimed for. By carrying out the research and failing, the business is increasing the existing knowledge of the subject or working towards curing a scientific or technological uncertainty.
How much can businesses claim?
For SMEs, the amount of tax relief that can be claimed is currently up to 33% of R&D qualifying costs. This credit is also available if the business makes a loss or doesn’t earn enough to pay taxes on a particular year – either the claim can be surrendered or the credit at a rate of 14.5% of R&D qualifying costs or held against tax payments for the following year.
Making a claim
The system to make the claim can be a little complicated and for this reason, Easy R&D now offer a service where they can handle it for the business. This involves investigating to be certain the work will qualify for the credit. Once it is established that it does, documents can be collected to prove the money spent by the business on the research and then the claim can be submitted. Under the current system, the business could see the tax relief within six weeks of the date of claim without any further paperwork required.
Easy R&D have helped hundreds of companies to make R&D tax relief claims. Contact your nearest R&D Consultant to see if you can claim – 0800 195 7516
You can read this update from Easy RnD on TFF's AGVendor...
Examples of scientific or technological advances might include:
- Fertilisers, pest and weed control
- Adapting to atmospheric conditions e.g. silage wrap
- Development of new machinery and components or adaption of existing e.g. robotics for a particular task
- Maximise yield through soil management and smart irrigation
- Processes to reduce waste and/or reuse waste products e.g. bio-fuels
- Feed supplements to improve livestock production and reproduction
- Use of sensors, drones and satellite technology
- Vertical farming or hydroponics
Tax credit basics
There are two bands for the R&D tax credit payment system that depends on the size and turnover of the business. These are classed as Small and Medium-sized Enterprises (SME) and as Large Company.
To be classed as an SME, a business must have less than 500 employees and either a balance sheet less than €86 million or an annual turnover of less than €100 million. Businesses bigger than this or with a higher turnover will be classed as a Large Company for the research tax credit purposes.
The biggest reason that businesses don’t claim for the R&D tax credit that they are able to is because they either don’t know that they can claim for it or that they don’t know if the work that they are doing can qualify.
Improvement in knowledge
Research and development must be in one of two areas to qualify for the credit – as either science or technology. According to the government, the research must be an ‘improvement in overall knowledge and capability in a technical field’.
Advancing the overall knowledge of capacity that we already have must be something that was not readily deducible – this means that it can’t be simply thought up and needs something kind of work to create the advance. R&D can have both tangible and intangible benefits such as a new or more efficient product or new knowledge or improvements to an existing system or product.
The research must use science of technology to duplicate the effect of an existing process, material, device, service or even a product in a new or ‘appreciably improved’ way. This means you may take an existing device and conduct a series of tests to make it substantially better than before and this would qualify as R&D.
Scientific or technological uncertainty
The other area that can qualify for the tax credit is termed as solving a scientific or technological uncertainty. Such an uncertainty exists when it is unknown whether something is either scientifically possible or technologically feasible. Therefore, work is required to solve this uncertainty and this can qualify for the tax credit.
The work needs to be carried out by competent, professionals working in the field. Work that improves, optimises or fine tunes without materially affecting the underlying technology don’t qualify under this section.
Receiving the tax credit
If the work carried out by the company qualifies under one of the criteria, then there are several things that the company can claim for based around the R&D work being done. The company must be a UK company to receive this and have spent the actual money being claimed in order to claim the tax credit.
Areas that can be claimed for under the scheme include:
- Wages for staff under PAYE who were working on the R&D
- External contractors who receive a day rate can be claimed for on the days they worked for the R&D project
- Materials used for the research
- Software required for the research
Another factor to the tax credit is that it doesn’t need to be a success in order for the claim to be made. As long as the work qualifies under the criteria, then even if it isn’t a success, then the tax credit may be claimed for. By carrying out the research and failing, the business is increasing the existing knowledge of the subject or working towards curing a scientific or technological uncertainty.
How much can businesses claim?
For SMEs, the amount of tax relief that can be claimed is currently up to 33% of R&D qualifying costs. This credit is also available if the business makes a loss or doesn’t earn enough to pay taxes on a particular year – either the claim can be surrendered or the credit at a rate of 14.5% of R&D qualifying costs or held against tax payments for the following year.
Making a claim
The system to make the claim can be a little complicated and for this reason, Easy R&D now offer a service where they can handle it for the business. This involves investigating to be certain the work will qualify for the credit. Once it is established that it does, documents can be collected to prove the money spent by the business on the research and then the claim can be submitted. Under the current system, the business could see the tax relief within six weeks of the date of claim without any further paperwork required.
Easy R&D have helped hundreds of companies to make R&D tax relief claims. Contact your nearest R&D Consultant to see if you can claim – 0800 195 7516
You can read this update from Easy RnD on TFF's AGVendor...
