Research and Development Tax Credits
The Research and Development Tax Credit Scheme was introduced by the government in 2000 to encourage business innovation and growth within UK industry. In the words of HMRC to be eligible to qualify you need to be ‘undertaking product or software development which is not readily deducible by a competent professional’. This means undertaking development work which makes your products or processes ‘better, cheaper and or faster’ and in doing so you have overcome technical challenges or uncertainties.
Who is the scheme for?
- Limited companies
- Both profit & loss-making companies
- New businesses can qualify after their first year of trading
- Failed and abortive projects can still be eligible
How is the benefit received?
Companies receive their benefit through the corporation tax returns (CT600) in various ways:
- Corporation tax repayments for a previous period
- Reductions in corporation tax for a current period
- Companies can trade losses in for cash
- Losses carried forward to use against future corporation tax
The scheme is more generous for SMEs
Small to medium sized businesses can claim up to 25% back of the eligible spend. For larger companies (typically more than 500 employees) it equates to approximately 8%.
What costs can I claim?
- Staff costs (inc PAYE and pension)
- Subcontractor costs
- Certain overheads
- Overseas costs (paid from UK)
The scheme applies to a broad range of business sectors
While the Research and Development tax credit scheme tends to conjure up images of men in white coats, the scheme in fact applies to a broad range of business sectors including:
- Software & IT Development
- Engineering & Electronics
- Adhesive & Plastics
- Agriculture & Agricultural Equipment
- Construction & Architecture
- Food Manufacturing
- Recycling & Waste
Technical challenges come in many different forms, for example:
IT & Software
- Cyber security & encryption
- Search engine advancements
- Linking old and new software systems
- Longer shelf life
- Developing products for specific dietary needs
- Using less additives, retaining the same characteristics
- Extending battery life
- Achieving same functionality using cheaper materials
- Using waste resources to create improved products