Who is eligible for R&D Tax Credits?

R&D activity is when a UK-based company has initiated the development of a product, service, or process with the key incentive to seek out advancement in science or technology. That activity can be situated within any industry; however, the advance must span across that field of technology and not be related specifically to your business.

When applying for R&D Tax Credits, you will need to articulate the existing baseline technology, your advance in advancing that baseline and the uncertainties inherent in achieving it. The evidence will include documenting knowledge from your competent professionals leading the project, highlighting the difficulties to solve the problem, and describing how any previous attempts have failed in the past. You will also need to demonstrate research, testing and analyses in your solution. 

Often, the physical evidence is limited. In that case, you will need to provide a dynamic account of other areas such as existing knowledge,  other professionals’ work in the field, previous attempts to resolve the uncertainty, etc.

Different schemes

There are two types R&D Tax Credit schemes: SME and RDEC.

For the SME Scheme the eligible costs categories are:

• Staff costs;
• 65% of sub-contractor costs and externally provided workers;
• Consumable items;
• Software;
• Clinical trial volunteers.

The SME scheme can also help with the cost of:

• Software license fees;
• Clinical trial volunteers.

For RDEC only certain types of subcontractors are allowable. The size of your business will define which R&D Tax Credits scheme you are eligible for as well as the benefits you will be receiving.

To qualify for SME R&D Tax Credits, you must have fewer than 500 staff on your payroll (including directors). Slightly different rules apply to part-time and external staff. You also must have an annual turnover of fewer than €100 m, OR a balance sheet totalling less than €86 m.

If you have received a grant or subsidy then some or all of your project costs will only also fall under RDEC rather than the SME scheme.

For the SMEs, if you’re a profit-making company, the scheme provides a deduction from your trading profits at the rate of 130% of your qualifying expenditure. If you are a loss-making company, you can surrender your losses and gain a payable tax credit at the rate of 33.3% on your qualifying expenditure. Under the RDEC scheme, the cash benefit you receive is 11% of your qualifying expenditure.

For more information on how to define the size of your business please read our SME R&D Tax Credits or RDEC: Which One Do You Qualify For? blog.

There are many nuances and complexities associated with R&D tax credits application. Our team of specialists can help to maximise the potential of your claim. Get in touch with us and schedule an initial conversation to learn more.