R & D Tax Credit

R & D Tax Credit claims

An existing client recently recent reached out to us and asked for assistance in developing leads for the governments R & D Tax Credit scheme.

Having fully researched the market, we estimated the monthly search volume to be approximately 6000 uniques per month.

The competitors websites were long standing, nevertheless upon further due diligence, we were confident we could dominate this niche and so the work began.

What is R & D?

R & D stands for Research and Development. It refers to innovative activities undertaken by companies or governments in developing new services or products. It also encompasses the improvement of existing services or products.

The general thought is that employees need to be wearing lab coats to qualify, but thats not the case.

The Research & Development Tax Credit

The R&D Tax Credit scheme is a general business tax credit for companies that incur R&D expenses in the United Kingdom. It is a very generous relief which rewards companies for their investment into innovation.

The R&D Tax Credit scheme has been around since 2000 and last year over 25,000 companies in the UK claimed almost £2.9 billion in tax relief.

Unfortunately Only Limited Companies qualify for R&D tax relief. It can reduce tax bills or can allow claimants cash credits as a proportion of the R & D expenditure.

Who Qualifies for R & D Tax Relief?

Eligible companies include:

  • Manufacturing (almost any sector)
  • Engineering (mechanical, electrical, civil)
  • Agriculture (field, greenhouse, irrigation)
  • Food and Beverage Production
  • Printing and Publishing
  • Software Developers

To qualify for the research tax credit, businesses must have:

  • Developed products or processes that have been developed using specific know-how that is treated as a trade secret or is patentable.
  • Developed a new or improved product that advances the state of the art, and required one or more redesigns, simulations, mock-ups and/or experimental trials to achieve.
  • Developed or incorporated a new technology in order to catch up to a competitor.
  • Attempted to develop a product or process improvement but it was eventually abandoned. (A project does not have to be successful to be eligible).

Companies must have incurred costs in any of the following:

  • Development of new equipment
  • Prototype products
  • Production tooling
  • Material consumed during testing
  • Sample parts to refine a process
  • Consultants or subcontractors
  • Money spent on salaries
  • Software
  • Contracted test labs
  • Utilities and materials ‘consumed or transformed’ which includes chemicals, materials, batteries and certain forms of tooling

It should be noted that capital expenditure does not qualify under this scheme.

Most companies which even includes start-ups can claim back circa 33p for every pound spent on R&D.  In addition to this, they can also receive a cash benefit, even if their business is not making money.

The average claim in the UK for the 2015/2016 tax year made by SMEs was £61,514.

Eligible R&D Activities:

There are three types of R&D situations supported by the R&D tax credit program. They are classified as follows:

  • Classic R&D: resulting from a deliberate decision to develop a new or improved product or process;
  • Contingent R&D: planned to be contingent on receiving an order, where the bid was made knowing that existing technology is insufficient to fill the order without some development effort;
  • Unplanned R&D: arising from the sudden discovery, part way through filling an order, that existing technology is inadequate and must be advanced by an emergency development effort to complete the order.