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Since its inception in April 2000, the government’s research and development tax credit scheme has enabled companies engaging in innovative activities to claim relief on qualifying expenditure. Many more businesses, however, aren’t claiming for eligible projects and are thus missing out on vital funds that could help them grow.
Although the claims process and the details of which activities qualify for R&D tax credits can seem complex, seeking assistance from an accountant or R&D tax advisor could mean valuable recompense for the expenses incurred during research and development projects. Here’s a brief summary of how to determine whether your activities are eligible.
Eligible R&D activity
The government broadly states that projects which seek scientific or technological advancement in their field are eligible for R&D tax relief. The could mean the resolution of a scientific or technological uncertainty that others have failed to overcome in the past, or that other highly skilled professionals do not readily have the means to overcome. The advancement must also benefit the industry as a whole, not simply provide commercial advancement for the business conducting the R&D.
To help determine if your activity qualifies, you can ask yourself a series of questions. If the answer to any of them is yes, you may want to investigate the opportunity for claiming R&D tax credits further.
- Is your business setting itself apart from others within your sector through this activity?
- Is there an element of risk or technological uncertainty involved with the project?
- Are you investing time and resources into making processes or products more efficient?
- Are experts in a scientific or technological field employed by you on a project?
R&D tax credits can be claimed on revenue expenditure, but not on the costs associated with capital assets. Expenses that qualify include:
- Physical materials that are used directly for the R&D project
- Utilities such as electricity and water, that are associated with the R&D activity
- Software obtained specifically for the project
- Employee costs such as wages for staff engaged in the project
Speaking to both technical staff and your accounts team can help you determine what costs are eligible for relief. You can also use an R&D tax calculator to give an idea of the amount you can claim for. Liaising with an R&D tax advisor is, of course, recommended too in order to ensure your calculations are accurate.
The receipt of some grants, such as the State Aid grant, affect your project’s eligibility for R&D tax credits. If your R&D activity has had grant funding, you may not be able to claim under the SME scheme (aimed at businesses with fewer than 500 employees) and therefore have to claim under the less generous RDEC scheme.
Other grants, however, such as the Horizon 2020 provision, are non-notified State Aid grants, which means you may still be able to claim R&D relief under the SME scheme. Again, seeking guidance from an expert in R&D tax is advisable if you have received grant funding.