What are R and D Tax Credits? & Could Your Company Qualify for It?
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Innovation is one of the major contributing factors in the UK economy and it further aids to create a competitive environment and stimulate growth.
There are various lucrative R&D incentives available in the UK to encourage businesses to invest in scientific and technological innovation. The R and D Tax Credits scheme was initiated in the year 2000, by the UK government to inspire and motivate innovation in the UK. R and D Tax credit schemes increased investment in the fields of research and technology by giving rewards in the form of R and D tax credits or R&D tax relief.
It is a highly remunerative scheme that allows businesses to reclaim up to 33% of their R&D expenditure which they invested in their qualifying R&D project. R&D tax relief scheme also allows businesses to mitigate their tax liability.
Does Your Company Qualify for R and D Tax credits?
According to the instruction given by HMRC, the R and D tax credits scheme is available for various domains and all kinds of UK companies if:
- you are a UK based company
- you are seeking advancement in science or technology
- you are trying to create some new device, product, process, services
- or improving some device, upgrading product, simplifying processes or services
- you have faced technical uncertainties and taken help from professionals.
This is the eligibility criteria set by HMRC, and if any company fulfills these prerequisites then regardless of its size and financial position it can claim R and D tax credits. R and D tax credit scheme is also available for both profit and loss-making companies.
What can be included in the R and D Tax Credit Claim?
According to HMRC following are the costs considered as qualifying R&D expenditure, which can be included in the claim:
- Staff expenditure: Includes pay of employees directly involved in research and development projects.
- Subcontracted Expenditure: You can reclaim up to 65% of subcontractors cost
- Software cost: You can reclaim the expenditure of buying a license of project-related software.
- Material & Process costs: Cost of all the material and equipment required for the R&D project.
- Manufacturing cost: Cost of training staff, and manufacturing and developing also qualifies for the claim.
How Does R and D Tax Credits Scheme Work?
If a company’s project falls under the criteria of research and development set by HMRC then it is eligible to reclaim costs spent on innovation, whether in developing something new, or in upgrading existing service, product, or process.
After assessment of the company’s eligibility, the company can claim via the R and D tax credits scheme. There are two R and D tax credits schemes, and companies are can claim R&D tax credits according to the scheme they fall in:
1. For Small & Medium Enterprises (SMEs):
- If you have less than 500 employees in your company or have a turnover of less than £100m then you fall under the category of SMEs.
- SMEs R and D tax credits scheme allow you to have a 130% tax reduction for qualifying expenditure, which is almost 25% against each £100 invested in R&D.
- If you are a loss-making company then you can receive up to 33% against R&D expenditure.
- It also allows you to claim for corporation tax returns paid in the last two financial years.
2. RDEC Scheme:
- RDEC scheme is for large companies, companies having more than 500 staff and turnover of more than £100m.
- Large companies can also claim for tax reduction via R&D tax relief claim or payable R and D tax credits.
- From 1st April 2020, large companies can claim taxable credits up to 13% of their qualifying expenditure.
- Payable credits are limited to the company’s PAYE/NIC liabilities of staff involved in R&D projects for the accounting period under claim.
It is important to note that HMRC has introduced a PAYE cap to limit the size of payable tax credits from 1st April 2021 to discourage fraudulent R and D tax credit claims.
How Can Valiant & Stone Help You?
Valiant & Stone is the largest and most experienced team of R and D tax credit experts. Our team of R and D tax credits experts has extensive experience in preparing R&D claims with a 100% success rate. We have successfully claimed for the range of domains and helped them receive maximised R and D tax credits. Our R&D tax relief specialists are adept at looking deep into your business and pruriently preparing R&D claims. So feel free to contact our consultants to find out more about R and d tax credits and how it can be beneficial for your business.