What are R&D tax credits and who is eligible?

Research and Development (R&D) Tax Relief is available to companies who undertake qualifying innovative projects.

Corporation tax relief and/or tax repayments are available where a company has undertaken at least one project which seeks to obtain a scientific or technological advance, has encountered scientific or technological uncertainties and has incurred qualifying costs.

Many people are under the impression that a company can only qualify for R&D relief if it employs people in white coats.

However, in reality, all sorts of companies in various different sectors can qualify for the relief, as long as they meet the relevant HMRC criteria. There are two R&D schemes in operation.

The Small & Medium Sized Enterprise (SME) scheme is available where a company is below a certain size and has self-funded R&D qualifying projects. This is the most generous of the two schemes.

The Research & Development Expenditure (RDEC) scheme is available where a company exceeds a certain size, or if an otherwise SME qualifying company receives funding towards an R&D project, whether this is government-backed grant or loan funding, or customer/client funding of the research and development work.

R&D relief is extremely valuable to thousands of companies across the UK. Many are not aware they may qualify for this relief though.

The tax savings can be significant, so it makes sense to assess whether your company may be eligible.

There have been a number of changes within the R&D schemes over recent years and there are more planned.

It is therefore important to take specialist advice in this area to ensure the relevant projects do qualify and you can maximise the tax efficiencies from using these schemes.

Case Study: Relief helps spark growth

A client came to Beever and Struthers for advice in respect of R&D tax relief.

Initially, we discussed potentially qualifying R&D projects and their eligibility for R&D tax relief under both the SME and RDEC R&D schemes.

We also discussed how to maximise the R&D claims under both schemes and the various costs which would be eligible for R&D tax relief, along with complexities that arose due to various types of grant funding the company had received.

We prepared and submitted the R&D claims to claim an enhanced loss. Covid and Brexit unfortunately adversely affected the company’s profitability and cash flow, so we amended the claims to instead claim a repayable tax credit and the company received a significant R&D payment from HMRC as a result.

This enabled it to further invest in R&D and grow the business, whilst creating technology that gave it a significant competitive advantage.

The company is now extremely profitable and its future looks bright.