Research and Development Tax Credits – relief for Corporation Tax
Research and Development Tax Credits is a government incentive scheme that rewards companies who undertake research and development (R&D) by giving them some of their tax back. The scheme has been developed by the government to encourage innovation and investment into research and development in UK business. The benefits of this scheme can be quite significant, with an average payout of a range between £49,000 to £54,000 per claim. These claims are the main route the government has to pump cash into SMEs.
Both large companies and SME’s, from any industry, can be eligible to claim R&D Tax Credits, providing they meet the research and development criteria. If you develop products or services, make samples, moulds or prototypes, do testing, improve your processes etc. then it is possible you could qualify for some R&D tax relief. However, making a claim can be quite tricky as it involves knowing what is or is not R&D, writing a technical report and identifying the development costs in your business.
This is where Baker Watkin can help, we have teamed up with R and D Tax who are experts in this area. They can quickly identify if you qualify for R&D Tax Credits and give you more details about the scheme. If you qualify, in conjunction with R and D Tax and Baker Watkin, the necessary documentation can be produced to submit your R&D claim to the HMRC.
Many businesses often don’t realise their projects qualify for R&D Tax Credits, and with the benefits involved it is certainly worth looking into. So how do you know if your projects qualify? We take a look below and offer some useful advice.
Do your projects meet the criteria for R&D tax relief?
To qualify, the aim of your project must be to seek scientific or technological advancement and have an element of technical uncertainty for a competent professional. HMRC states ‘Scientific or technological uncertainty exists when knowledge of whether something is scientifically possible or technologically feasible, or how to achieve it in practice, is not readily available or deducible by a competent professional working in the field.’ So, if your project team has faced problems to which a solution is not widely available and this has led to improving, innovating or developing a process, product or service in order to address the problem, then this could be activity that qualifies for R&D Tax Credits.
However, there are a couple of points to consider here. It is not sufficient for your project to be commercially innovative only, it must include scientific and/or technological advancement (this does not include work in the arts, humanities and social sciences, including economics). And if project problems and uncertainties can be overcome through relatively brief discussions with peers and minor research to find the solution then this will be considered routine uncertainties, not technological uncertainties. Technical problems that have been overcome in previous projects on similar systems are also not likely to be considered technological uncertainties.
To make a claim for R&D Tax Credits you will need to provide a summary of the projects your company has run during the year. You can make a claim for multiple projects providing they all fit the required criteria. This summary should indicate how your projects fall within the R&D definition for tax purposes by answering the following questions:
Read more about the definition of R&D for tax purposes from the HMRC.
What is the scientific or technological advance?
Rather than just stating the basic facts of the project, for example, the name of the product, process and functionality being developed, you should consider what scientific or technological advance is being sought. This focuses attention on the project’s aim for advancement, which is a key factor in judging whether R&D tax relief can be awarded.
What were the scientific or technological uncertainties involved in the project?
Give an overview of what these uncertainties were, but don’t get too technical, your summary should be understandable by a non-expert. Remember the person reviewing your claim will most likely not be an expert in your industry. Their expertise lies with processing your R&D Tax claim so make it easier for them by being clear, concise and using laymen terms where possible. You will also need to include when these uncertainties started and ended.
How and when were the uncertainties actually overcome?
Describe the methods adopted to overcome the uncertainties and the investigations and analysis undertaken. Again, this should not be too technical or in great detail, it is sufficient to simply show that the matter was not straightforward. Describe the successes and failures and the impact of these on the overall project. If the uncertainties weren’t overcome, explain what happened.
Why was the knowledge being sought not readily deducible by a competent professional?
It could be that others have attempted to resolve the same issues as you have. It might be publicly known that they failed in their attempt, or they may have succeeded but the details of how they did it have not been made public. In either case, your technical uncertainties can still be valid.
If there is little public information available to help resolve your uncertainties, you will need to show that the individuals leading your R&D project are themselves competent professionals working in the relevant field. This might be done by outlining their relevant background, professional qualifications and recent experience. In addition, they should explain why they consider the uncertainties are scientific or technological uncertainties rather than routine uncertainties.
Our next blog will take a look at the costs you can claim back with R&D Tax Credits.