The UK is a hub for innovative businesses. According to the Global Innovative Index, we’re sitting pretty as the fourth most innovative country in the world. But innovation often comes with a hefty price tag. Business that take the road less traveled are often going in blind, and all that trial and error to come up with the newest idea that actually works costs a lot more than the time-tested fail-safes. Which is where HMRC’s Research & Development tax relief comes in.
What is it?
At its simplest, it’s an incentive to encourage UK SMEs to increase funding and effort spent on new innovations. Introduced in 2000, it pays out a whopping £2bn per year across the country.
The rules, as always, can be complicated, but for most it is paid either as a tax relief (in the form of enhanced expenses – of up to 230% of your qualifying expenditure) to bring your final tax bill down, or if your company has made a loss, a payable tax credit worth up to 14.5% of the surrenderable loss.
Who can claim it?
Your company should have fewer than 500 employees and either a turnover of under €100m or a balance sheet total under €86m.
It’s a common misconception that you need to only be in some sort of technological field to apply for R&D tax relief. Any company in any sector can apply for R&D tax relief, as long as you can prove you’re meeting certain criteria in your innovative endeavours.
You will need to show that:
- The company was searching for or trying to actively develop an advance in technology or science
- There was some scientific or technological uncertainty into how you might be able to make this happen
- You managed to find a solution to this uncertainty
- It was not an obvious solution to a professional in the field
If you set out to achieve/make/design something you weren’t sure was possible before you began, that’s generally a good acid test as to whether you’re eligible for R&D tax relief.
What expenses count?
The list of expenses that can be claimed is fairly generous, and they start from the time you begin working on your project until the time you find your solution or you stop your project for whatever reason.
Any employee costs can be claimed including wages, NI contributions and even pension contributions. Costs for contractors can be added on too, but only up to 65% of the total expenditure. In the pharma industry, if you bring in any human guinea pigs for clinical trials, the cost of these can also be claimed.
Software or license fees used purely for your project can also be added to the list, as well as partial costs for other software you might have used that you also use elsewhere in your business.
Finally, any consumable items or materials you use in your project can be claimed, including a partial share of your utility bills.
You cannot claim for the costs of production or distribution, patents or trademarks, rent/rates, or land.
How do I make a claim?
You submit your enhanced expenditure figures along with your full Company Tax return, and then use the government’s online service to send details that support your claim. If you’re applying for the first time, you may be eligible for Advance Assurance, which means you won’t have to reapply each year for the first three years.