Research & Development (R&D) tax credits claims

Research and development (R&D) tax credits are a government incentive designed to reward UK companies for investing in innovation. They are a valuable source of cash for businesses to use to invest and ultimately continue growing.

Companies that spend money on qualifying R&D activities can make a R&D tax credit claim to receive either a cash payment and/or Corporation Tax reduction. If you’re making a claim for the first time, you can typically claim R&D tax relief for your last two completed accounting periods.

Any UK limited company that is subject to corporation tax and has;

• Carried out qualifying R&D activities.
• Spent money on qualifying R&D costs.

• Creating new products, processes or services.
• Changing or modifying an existing product, process or services.

• Staff costs including Employers Class 1 NIC contributions.
• Subcontractor costs.
• Testing costs.
• Cost of materials.
• Water, fuel or power consumed in the R&D process.
• Training costs.
• Types of software capital costs.

There are two tax credit schemes; SME R&D tax credit and R&D Expenditure Credit (RDEC). Which scheme you use to make an R&D tax credit claim will largely depend on whether you are an SME or a large company. Please see contact us for more information.

Fewer than 500 staff and either not more than €100 million turnover or €86 million gross assets. Most companies, including start-ups, fall into this category.

500 staff or more and either more than €100 million turnover or €86 million gross assets.

SMEs are able to claim up to 33p for every £1 spent on qualifying R&D costs. Large companies are able to claim up to 10p for every £1 spent on qualifying R&D costs.

Both schemes, like R&D tax relief for SMEs, have been confirmed as Notified State Aid and State Aid rules prevent using more than one form of Notified State Aid on the same project, even if they’re used at different times, and even if you pay the money back. This means:

• If you’ve been claiming SME R&D tax credits, you won’t be allowed to use CBILS/BBLS finance to support any project that has received SME R&D tax relief.
• If you haven’t been claiming for SME R&D tax credits yet, any project that you support using CBILS/BBLS won’t be eligible for SME R&D tax credits, either now or at any point in the future.

The effect of using Notified State Aid on an R&D project is to push the entire project’s expenditure out of the SME scheme and into the RDEC scheme, which gives a return of about 13p per £1 (before tax) rather than the 25-33p per £1 of the SME scheme.

The key points to remember therefore are: 

• If you can, allocate the CBILS or BBLS loan funds as much as possible to non-R&D activities
• Document the decision, such as via board minutes, on what the funds will be used for (such as general business operation and not for R&D)