R&D Tax Credits
Research and development (R&D) tax credits can help reduce your company's tax bill. Our quick guide covers how it works and how to claim.
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- What are R&D Tax Credits?
- How do R&D Tax Credits work?
- What qualifies as Research and Development (R&D) Tax Credits?
- Types of R&D Tax Relief
- Is my business eligible for R&D Tax Credits?
- How to claim R&D Tax Credits
- How are R&D Tax Credits calculated?
- R&D Tax Credits Calculator
- How far back can you claim R&D Tax Credits?
- Can sole traders claim R&D Tax Credits?
- Why use Capalona?
What are R&D Tax Credits?
Regardless of whether you’re an SME or a large company — if you work on innovative projects in the science and technology space, you can receive research and development tax credits, also known as R&D tax relief, from the Government.
The Government introduced these credits as a way to reward companies investing in innovation to further develop in their field.
How do R&D Tax Credits work?
If you’re investing in the development of new products, processes, services, or even if you’re just revisiting existing projects, your company could be eligible to claim R&D tax credits. The Government wants to encourage UK companies to invest in innovation, keeping the UK front and centre when it comes to innovation.
Each sector has its own scope for helping you understand what projects you can claim for. When you make an R&D tax credit claim, you will receive either a reduction on Corporation Tax or a cash payment. You can recoup up to 33p for every £1 spent on qualifying costs, so it’s worth finding out if you’re eligible.
Learn more about what qualifies as research and development (R&D) below.
What qualifies as Research and Development (R&D) Tax Credits?
It doesn’t matter what industry you’re in, you could be eligible for R&D tax credits. But to qualify, you have to have initiated qualifying research and development activities — this is the biggest hurdle for businesses.
So, if you’ve created new products, processes, or services. Or you’re hoping to change or amend a current product or service, you could qualify. Learn more about qualifying activities and expenditures below.
R&D tax credit qualifying activities
The definition of R&D is pretty vast, so even if you think you don’t qualify it’s always best to seek help. Here are some examples of research and development (R&D) qualifying activities:
- Software Development
- Engineering Design
- New Construction Techniques
- Bio-energy
- Cleantech
- Agri-food
- Life and Health Sciences
R&D tax credit qualifying expenditures
- Staffing costs: including staff wages, employer’s National Insurance Contributions (NIC), employer pension contributions and certain reimbursed expenses
- Third-party staff: including subcontractors and EPW's (Externally Provided Worker)
- Materials and consumables: including heat, light and power that are used up or transformed by the R&D process
- Software: including cloud computing, data processing and storage, artificial intelligence (AI) and machine learning, IOT, Fintech and robotics
- Payments to the subjects of clinical trials
Types of R&D Tax Relief
The type of R&D tax relief you can access depends on the size of your company, and whether or not the project has been subcontracted to you.
Small and medium sized enterprises (SME) R&D Relief
If you have less than 500 employees, and turnover under 100 million euros or have a balance sheet totalling under 86 million euros, you can claim SME R&D tax relief.
Research and Development Expenditure Credit (RDEC)
This type of credit is reserved for large enterprises, previously available under the large company scheme. You don’t have to be a large company to access this type of R&D Tax Credit — if you’re an SME and you’ve been subcontracted to do research and development work by a large company, you can also access it.
Gov.uk states: The RDEC is a tax credit, it was 11% of your qualifying R&D expenditure up to 31 December 2017. It was increased to 12% from 1 January 2018 to 31 March 2020, and then to 13% from 1 April 2020.
Is my business eligible for R&D Tax Credits?
To be eligible for R&D Tax Credits, you must:
- Be a limited company in the UK that is subject to Corporation Tax
- Have carried out qualifying research and development activities
- Have spent money on these projects
Still not sure if you’re eligible? get in touch, and our friendly team will call you back.
How to claim R&D Tax Credits
You can claim your research and development tax relief by submitting your expenditure into the full Company Tax Return form (CT600). You must submit a claim for each accounting period.
You’ll need to provide some details to support your claim. Details such as a short summary that explains how your R&D project meets the requirements. And if you’re claiming for more than one project, you must supply a summary for each.
You will also be required to supply the start and end dates of the accounting period relating to the R&D activity and details of your qualifying R&D costs. And don’t forget to save your Unique Taxpayer Reference (UTR) number, as they’ll require this, too. Your UTR can be found as soon as you log into HMRC with your Government Gateway login details.
How are R&D Tax Credits calculated?
The amount you’re able to recoup per £1 differs depending on the size of your company and whether you’re profitable or not.
- Loss making SME - SMEs are able to claim up to 33p for every £1 spent on qualifying R&D activities.
- Profit making SME - SMEs are able to claim up to 25p for every £1 spent on qualifying R&D activities.
- Large Company - Large companies are able to claim up to 13p for every £1 spent on qualifying R&D activities.
R&D Tax Credit Calculation Examples
As an example, if you’re a profit-making SME, spending £50,000 on research and development — you could stand to recover up to £12,500.
But, if you’re a large company, spending around £250,000 a year, you could expect to receive up to £32,500.
If you’re wondering just how much you could recoup, use our calculator below to find out an estimation.
R&D tax credit rates 2022
| Your Business | R&D Tax Credit Incentive | RDEC Incentive |
|---|---|---|
| Loss-making SME | Up to 33% | 13% |
| Profit-making SME | Up to 25% | 13% |
| Large Company | n/a | 13% |
R&D Tax Credits Calculator
Use our quick and simple calculator to work out how much you could recover in R&D tax relief.
Please remember, this is just an estimation, apply now to find out exactly how much you can recoup. In some cases, SMEs may need to claim using the RDEC scheme instead, or use both incentives. This is why it is essential to seek professional advice.
Your R&D details
Please include costs for employees, subcontractors, materials and software for R&D.
Your results
You could receive up to:
£1686.17
as a tax refund or reduced tax liability.
This calculator is intended for illustration purposes only. The exact R&D tax credits that you will be able to claim may be differenty than the R&D costs entered.
Find out if you can claim R&D Tax Credits today.
How far back can you claim R&D Tax Credits?
Two years. The time limit to claim research and development tax relief is two years from the end of your company's year-end, during which the R&D work took place. Before the two-year period ends, you must submit a claim for all qualifying expenditures relating to R&D activity.
For example, if your company's financial year-end is 30th April 2022, you can claim R&D Tax Credits as far back as the accounting year 2019/20.
Can sole traders claim R&D Tax Credits?
No. Unfortunately, sole traders are not eligible to claim R&D tax credits. Only companies that are liable to pay UK Corporation Tax are eligible to claim.
Why use Capalona?
Here at Capalona, we’re brokers. This means we work with reputable UK advisors and providers to help you get great deals for your business. We want to see your business succeed, so that means providing the most straightforward business service on the market.
Our partners can help you squeeze as much as possible out of your R&D tax credits - they can help you qualify your research and development projects, and manage any risks in your claim. Qualifying costs might have been missed, and it’s our UK partners’ responsibility to scour through your qualifying expenditure with a fine-tooth comb to ensure you’re getting the most tax credits possible.
Our aim is to help businesses get the best deals and save money, without sacrificing value, and that’s exactly what we do. We offer business costumes an unbiased forum to find, research and compare business deals.
What are you waiting for? get in touch and find out how much your business could recover from HMRC.
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