Is your company eligible for R&D tax credits? If your organisation is a small to medium enterprise (SME) which satisfies the government’s qualifying conditions, you could be eligible for significant cash flow benefits.

Investments in R&D (research and development) can help business growth, and even enhance your own supply chain. So if you are looking at R&D to provide you with a competitive edge, you should consider taking advantage of the government’s tax credits.

What’s the deal?

While R&D tax credits have been available for over a decade, we might say that it has never been easier to claim them, thanks to the programme’s recent expansion. This has given British businesses more incentive to develop intellectual property and file applications for patents. Ultimately, UK companies have been able to mitigate the risks that come with making long term investments in product development.

You could be able to reclaim up to 33 per cent of your R&D costs, regardless of the success of your R&D project. If you are a large company, you could reclaim up to 10 per cent. The money itself is received either as a negative corporation tax, or corporation tax refund. There are wide guidelines on what the funding can be used for. It could go towards new equipment, hiring a development team, or covering other costs.

  • Qualified SMEs can increase their qualifying expenditure on R&D for tax purposes by 130 per cent. In real terms, that means for every £100 of qualifying spending on R&D, you can claim a £230 taxable income deduction.
  • From 1st April, 2021, there is the possibility that this tax credit will be capped at three times the total NIC and PAYE costs of the SME claiming.
  • Expenditure which is externally subsidised does not qualify for the relief. For capital costs (including R&D equipment purchases), there are 100 per cent capital allowances which can be awarded

Important to note

The scope of an operation can be integral to whether it qualifies under the government’s criteria. Even a simple digital advancement could require significant R&D development if it is likely to benefit a large number – say millions – of users.

Data and cloud computing

If you are interested in conducting R&D for the purposes of cloud or data computing, you should note that the government is planning to consider whether expenditure in these areas will qualify for R&D tax credits.

R&D tax credits during the COVID-19 virus outbreak

It is worth noting that HMRC (Her Majesty’s Revenue and Customs) have issued an update on R&D tax credits in the wake of the COVID-19 virus outbreak. HMRC have said that they are making a priority of processing claims, in response to the concern that some businesses may have problems qualifying their cash flow.

According to the ICAS, the global professional body for Chartered Accountants, HMRC confirmed the following in a statement: “First, we appreciate there are concerns relating to the processing of R&D claims and in particular claims for payment and whether these can be accelerated. At a time of pressure on HMRC operational resources, our first priority is to maintain our published aim of clearing 95% of SME tax credit claims within 28 days and we have implemented contingency plans to support this, including applying extra resource to the work. Currently, we are meeting this aim.”

That’s our wrap on the latest ‘need to knows’ when it comes to R&D tax credits. Does your company qualify? Now could be a good time to assess your R&D needs and prepare an application for funding.

Mitch Young, Director & Head of Tax

Fusion Consulting is a multi-disciplinary consulting firm focused on fast growth and entrepreneurial businesses. We work closely with business owners assisting them with business advisory, accountancy services, tax, legal services and digital marketing.

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