R&D tax credits boost your business' investment records in its early years in the industry.

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What is R&D tax credits?

Innovation is the key to growth and sustainability for every business, industry, and country. An R&D tax credit is an incentive, designed to encourage new businesses to invest in research and development activities. The scheme, unlike the other HMRC benefits, is being granted as cash.

How does R&D tax credits work?

Companies investing in innovative products and/or services, or simply building up on the existing ones can claim the R&D tax credits from HMRC. There are 2 ways of claiming the benefits:

R&D tax relief: To qualify for R&D tax relief, the company must account for Corporation Tax, so that the relief can be adjusted to your corporation tax liability accordingly.
R&D tax credits: Based on your overall R&D expenses, you`ll be eligible to claim the benefit as cash from HMRC.

How would you become eligible
to claim R&D Benefits?

You can claim R&D tax incentives if you meet with all the 3 conditions as follows:

You perform qualifying R&D activities,
Investing in innovation, and
Being eligible to account Corporation Tax as the UK based Limited Company.

There is no industry classification; therefore, companies from literally any industry can qualify for the benefits.

What constitutes research and development?

Any of the below can be considered R&D for the purposes of qualifying for R&D tax incentives:

Any NEW process, product, or service, or
Modification or enhancement of an existing process, product, service or material.

If any of the above contains inherent risky factors, then, you can claim the benefits regardless of profit or loss your business make out of investing in R&D.

What costs do I need to pay to qualify R&D?

Consumables and raw materials used up during the R&D process, including heat, light, and power incidental.
Any staff costs either indirectly or partially, such as salaries, pension contributions, employer’s national insurance contributions, and other related expenses transmitted to the employees.
65% of staff costs paid to third-party providers.
Payments to sub-contractors or freelancers for R&D related work.
Any software costs, either directly or indirectly, as long as it`s apportioned accordingly.
Any payments to the subjects of clinical trials.

What R&D tax credit scheme I should pick?

Before discussing different schemes, we need to understand the below 2 classifications based on the size of your company:

SMEs (most of the companies are under this category, including start-ups)
- Companies with less than 500 employees, AND
- Turnover less than €100 million OR gross assets less than €86 million.
Large Companies: All companies other than the above.

There are 2 types of frameworks;

SME scheme: Only SMEs can apply for this scheme type.
RDEC (Research and Development Expenditure Credit) scheme: Large companies have no other option, but to choose this scheme.

Also, considering some factors such as grants and sub-contracting SMEs may also be forced to choose the RDEC scheme. Our expert advisers can assist you completely based on the facts of the case.

Much to their advantage, SMEs may apply for both SME and RDEC schemes simultaneously to make the most benefits out of the available frameworks.

What are the R&D tax credit rates?

Given the complex calculation of the scheme, we would like to make life easier for you by giving you the summary below;

SMEs can claim back around 33% of the total R&D expenses, whereas
Large companies can claim back around 10% of the total R&D expenses they’ve made.

R&D Tax Credit Calculator

The calculator below allows you to estimate the approximate benefit you can claim for expenses done after 1st January 2018. Please note that the actual amount may be different than the estimated one, depending on the final processing of the claim through our expert advisers.

Type of Company

SME

Large

Profitability Status

Profit-Making

Loss-Making

Estimated R&D Expense

We estimate you could receive up to

as a tax refund or reduced tax liability

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