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Research and development (R&D) Tax Credits represent a generous government tax relief incentive. The scheme allows any UK company investing in eligible innovation to claim up to 33p in every £1 of the qualifying costs back.
So what projects and costs can be included in an R&D Tax Credits claim? Here we take a look.
How much a company can claim in R&D Tax Credits depends on a range of factors.
The relief itself is subdivided into two branches: the Small and Medium Enterprise (SME) branch and the Research and Development Expenditure Credit (RDEC). Which one to use depends mainly on turnover, headcount and gross asset value, as well as whether the company has previously received any state aid grants.
R&D is defined as “seeking an advance in technology or science” by “resolving a particular uncertainty”. Essentially, it’s about creating a new product, process or service, or modifying an existing one. There must be an element of demonstrable financial and reputational risk, and the uncertainty itself should not be easily solvable by a competent professional working in the field.
Important, if it’s unclear whether the project would be successful from the start, or whether it’s even possible, then it could well qualify for R&D Tax Credits.
At this point we want to make clear that just because a project is challenging and complex, it doesn’t automatically mean it qualifies for R&D Tax Credits. The point is, there must be an unknown scientific or technological element to it.
Confused? Contact our team to discuss - we’ll be pleased to help.
Yes - the scheme is open to any UK company that’s subject to Corporation Tax (even if they made a loss).
Although R&D Tax Credits are offered regardless of sector or industry, some - like manufacturing, construction, pharmaceuticals and engineering - are more likely to be more prolific claimers than others.
Obviously we can’t go through every single sector and every single eligible project here, so below we’ve just looked at some key examples in the industries we’ve mentioned above.
Common examples within the manufacturing and engineering sectors include:
This is one industry that immediately springs to mind when we think of R&D, with drugs and therapeutics being top of the list. Indeed, over our two decades working with pharmaceutical companies on their R&D Tax Credits claim, we’ve found that much of the qualifying work occurs during clinical trials.
Creating and upgrading medical devices and hardware is another common claiming area. This includes new technologies needed to administer drugs and to monitor patients.
Another key area that tends to attract R&D Tax Credits is the creation of new testing methods. Although it is widely believed that the relief can only be claimed on finished products, the fact is that R&D Tax Credits can also be pursued for work relating to the manufacturing and productions processes too. If new technology has had to be developed to make a drug, therapy or piece of equipment more effective or efficient, then R&D Tax Credits could well follow.
Finally of course, there are other improvements in existing drug lines that can also attract R&D Tax Credits. This might be the development of a sugar-free drug for example, or devising more sustainable or animal-free testing. As we’ve learnt from Pfizer-BioNTech’s COVID-19 vaccine, there are always practical issues around drug logistics and storage too where eligible R&D is required.
Again, this is rarely straightforward. The costs involved in each R&D project will be totally unique and it’s very easy to over or under claim.
The R&D tax legislation is very precise in what it deems as eligible costs, but it can be updated regularly and at short notice. Again, the list of common costs we’ve put together below isn’t exhaustive so we strongly recommend speaking to our team. However, as a guide, qualifying costs for R&D tax relief purposes are as follows:
As you can probably tell, the rules around R&D Tax Credits are rather nuanced and complex in places. It’s certainly easy to make a mistake. This is where our experience in preparing and filing claims is highly valuable when navigating a successful claim.
If you believe your project is eligible for R&D Tax Credits, let the experts at Myriad Associates guide you. It’s all done remotely with no face to face contact, and we can maximise your claim for you too.
Get in touch using our contact form or call us on 0207 118 6045.