Is your business eligible for R&D tax credits?

R&D tax credits

In 2000, the UK government introduced a scheme whereby companies could reclaim expenditure on research and development projects. The purpose of this is to reward businesses who are seeking new solutions to industry-wide problems with financial remuneration for their efforts, thus encouraging Britain to stay at the forefront of innovation.

Research has shown, however, that very few companies are taking advantage of this, with – for example – 77% of engineering firms currently missing out. This appears to stem either from a lack of awareness about the scheme, or from uncertainty around eligibility to claim. Here, we explore what makes a project eligible for R&D tax credits.

Seeking an advancement

The government’s criteria for eligibility is vague, leaving scope for many businesses in a range of sectors to make use of the financial rewards of offer. In order to qualify, businesses must be seeking a scientific or technological advancement through the resolution of an uncertainty. The uncertainty must be something that cannot be readily resolved by a professional in the field.

Applicable industries

A huge range of projects could be eligible for the tax relief. Many assume that R&D tax credits are specifically for those in the medical or pharmaceutical industries, but businesses working on issues in agriculture, manufacturing, engineering and food – to name but a few – may find their activities qualify for remuneration.

Examples may include developing free-from food products, seeking viable alternatives to plastic packaging, or developing certain software.

Qualifying costs

Only certain costs qualify for R&D tax relief. Those which are directly associated with the project – such as staff wages, some software licences, utilities used to carry out the project and materials purchased for it – can be claimed for. If your business has used sub-contractors, a percentage of the expenditure for them can be reclaimed.

The schemes

Depending on whether your business falls under the small or large business classification for R&D tax purposes, you will need to claim under the appropriate scheme. The SME scheme offers better remuneration and is available to businesses of fewer than 500 employees, and which have a turnover of €100 million or less per annum. Under the scheme, up to 26% of relief is available on qualifying expenditure for profitable businesses, while those making a loss can claim up to 33.5% in tax credits.

Those with more employees and/or a higher turnover need to apply under the less generous RDEC scheme, under which a 12% reduction in Corporation Tax is available.

Grant funding

The receipt of grant funding can affect your eligibility for R&D tax credits. The SME scheme is classed as a ‘notifiable State Aid’, meaning that if your company has received a State Aid grant for an R&D project, R&D tax credits cannot also be claimed for the same project. Some grants, however, such as those classed as non-notified State Aid, do not exclude your project from eligibility for R&D tax relief. The various complexities around grant funding and R&D tax credits mean that it’s best to speak to a tax specialist – such as R&D Tax Solutions in Manchester – when deciding whether to submit a claim.