R&D tax credits, what are they and how do you get them?

Can you imagine as a business owner being entitled to thousands of pounds and not even knowing? How frustrating would that be? Sounds too good to be true, does it? Well it is true and thousands of businesses across the UK are failing to take advantage by not making a Research and Development (R&D) tax credits claim.

In fact, recent research suggests that less than 20% of eligible SMEs are claiming the R&D tax relief they are entitled to. When you consider the fact that the average R&D claim is worth just over £50,000, it really is a substantial amount for any small business and can make a significant difference to the financial health of a company.

What are R&D Tax Credits?

R&D Tax Credits were introduced by the government in 2000 to encourage and reward creativity and innovation among UK businesses. R&D is one of the biggest tax reliefs available to SMEs and can be worth up to 33% of a company’s R&D expenditure – or 33 pence in every pound. R&D claims can be made retrospectively for any R&D activity carried out in the last two years.

Who is eligible for them?

The qualifying criteria for eligibility include being a limited company in the UK that is subject to Corporation Tax. The company must have undertaken qualifying research and development activities and spent money on such projects.

So, what exactly are qualifying research and development activities? Well, the parameters for this are wide and varied and include creating new products, new processes, or new services. Changing or modifying existing products, processes, or services also fit the criteria.

Practical examples include developing your own IT system or modifying an off-the-shelf version. Changing the way, a company works during the past two years or having to change products or services due to regulations or accreditation.

Work carried out on behalf of a client also qualifies and remarkably, even if the project failed, the company may still be entitled to relief. R&D tax credits can also be claimed by loss-making companies.

Why are so few businesses claiming?

There are several reasons why so many businesses have not grasped this fantastic opportunity. Firstly, there appears to be a lack of awareness about the R&D tax relief scheme, with many businesses simply unaware of its existence.

Secondly, there is a lack of understanding regarding what type of work qualifies for R&D tax relief. Many SMEs associate research and development with the traditional white coat industries carrying out scientific research, such as in the pharmaceutical sector. Although this is a common misconception, research indicates that 80 per cent of SMEs from all business sectors qualify for the tax relief.

Another significant reason is the perception that claiming is a time consuming and expensive process. With businesses focussed on profitability and growth you can understand why such an assumption would put them off channelling valuable resources and setting aside time to conduct such an exercise. There are, however, reputable R&D tax specialists who will undertake all the necessary work in return for commission from any successful claim.

How do I claim?

The Government appreciates how important R&D is to the future of the UK economy, especially with the uncertainty caused by the coronavirus pandemic. Business owners and directors need to ask themselves whether they can afford not to claim R&D tax credits during these unprecedented times.

Our R&D tax experts will save you time by preparing a robust R&D tax credit claim that uncovers all of your qualifying R&D activity and costs – click here.

Alternatively, to find out more from the government website click here: