Guide to: R&D tax reliefs for SMEs

26th April 2019

Research and development (R&D) tax reliefs (sometimes called credits) are a government incentive designed to reward UK companies for investing in innovation and can provide valuable financial relief for many businesses. The R&D Tax Relief scheme has been in existence for over 17 years and nearly £2bn per annum is currently being claimed.  Often, companies simply don’t realise that they qualify for R&D Tax Credits or they may not be claiming their full entitlement.  This guide gives you an overview to the scheme and how you may be able to use it within your business.

r&d tax relief

Which items are included in R&D tax relief?

The key to eligibility is that your company must be carrying out development activities that are seeking an advancement in technology. A good test to conclude if the work you have undertaken qualifies for R&D tax relief is whether the team working on your project faced technological uncertainties when they started and didn’t know if they would be able to solve a particular technological goal.  If it can clearly be demonstrated that your project went beyond existing technologies and took a risk in innovating, improving or developing a process, product or service, then there is a good chance you will be able to claim R&D tax credits.

Costs on the project can be claimed from the date it commences until the innovation or “advance” is discovered or the project is stopped.  You can’t claim for items such as the production and/or distribution of goods/services, cap ex, land costs, rent or rates or the cost of patents and trademarks.

Employee costs

For any staff working on the project, you can claim for a proportion of their salaries, wages, NICs and pensions fund contributions.  You can also claim 65% of any payments made to external agencies if they provide staff for the project and you can also claim for admin and support staff who directly supported the project; for example if HR recruited someone to work on the project.

Subcontractor costs

You can claim 65% of the relevant costs of using a subcontractor for your R&D activities.

Software

You can claim for software licence fees bought specifically for the R&D project as well as a reasonable share of the costs for software that may have been partly used in the R&D activities.  

Consumable items

Consumable items such as materials and utilities can also be claimed for in proportion to how much they were used within the project.

Clinical trials volunteers

If you operate within the pharmaceutical industry then you can also claim for payments made to clinical test volunteers.

Companies that can claim the SME R&D tax relief

To class as an SME for R&D tax relief you must have less than 500 staff and a turnover of under €100m or a balance sheet that totals under €86m.  Be aware that factors such as external investors will impact your SME eligibility and you should also include the figures of certain connected and partner companies.  You can check whether your linked companies would class as connected or partner companies in this guidance from HMRC.

If you project is already receiving notifiable state aid or you have been subcontracted by another company then you will not be able to claim SME R&D tax relief, but you may be able to claim the R&D Expenditure Credit (RDEC).

How much can you claim?

The SME scheme has a rate of R&D expenditure tax relief as high as 230%, while RDEC (the research and development expenditure credit) is worth 12% of your qualifying R&D expenditure.

How to claim R&D relief

You can make a claim for R&D relief up to 2 years after the end of the accounting period it relates to.  You can claim your relief directly by entering your expenditure related to the project into your full Company tax return form, using the online government service to support your claim.  The area of R&D tax relief can be complicated to understand and we would always advise consulting a professional or your accountant to support you in your claim.

The TTR Team can help advise and support you in your R&D tax relief claim.  Speak to one of our expert advisors to understand more.

This information is intended as a guide only and does not constitute financial advice.  Information correct at time of publication April 2019

 

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