R&D Tax Credits - What are they all about?

SME limited companies may be missing a trick?

If it can be proved that you are working on R&D then you could be entitled to Corporation Tax relief using the SME R&D Tax Credit Scheme.

You may not know that you are conducting some form of R&D, making you eligible to claim the tax relief. With the current rate of relief being 230%, it is worthwhile making some time to see if you could claim.

 HMRC define a R&D project as one that “…seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty - and not simply an advance in its own state of knowledge or capability.”

 What this basically means is that if you’re working on a project that has the potential to improve an existing product, create a new product, develop prototypes or develop a piece of software, then it’s likely a claim could be made. You do not need to have successfully made a breakthrough to claim either.  

 Step one is to review your development program, to see if it meets the HMRC criteria.

 Step two, figure out what are the qualifying costs. These can include staff costs, Subcontractors/Externally Provided Workers, Consumables, Utilities, Software Licences and Clinical Trials.

 The final step is submitting the claim to HMRC. This is done at the same time as your Corporation Tax Return and requires not only a breakdown of the qualifying costs but a technical justification of why you believe them to be part of a R&D project. Although writing the technical justification may seem complicated, there are some guidelines as to what to include from HMRC which make the task much less daunting. Once submitted, the technical justification does not need to be submitted again but for each year that the project exists, you will need to submit a qualifying costs breakdown.