What is R&D? What are R&D Tax Credits? On this page, we will answer these questions and more. Read on to find out everything you need to know about R&D.
What is R&D?
R&D stands for research and development. It is the process of taking an idea and transforming it into a fully-fledged product or process. Researching, designing, creating and testing are all part of the R&D process.
What are R&D Tax Credits?
R&D tax credits are a government incentive designed to encourage innovation across multiple industries. This is an opportunity for you to reduce your corporation tax bill or receive a refund from HMRC based upon the number of working hours your business dedicates to Research & Development.
Under the scheme, SME’s can claim back up to 33% of the costs associated with R&D. That’s 33p back for every £1 spent on qualifying R&D activities. To get an idea of how much you could be refunded, check out our handy online calculator.
What sectors conduct R&D?
R&D can occur in businesses of all sectors and sizes. However, some of the sectors that most commonly conduct research and development are IT & Software, Electrical Engineering, Manufacturing, Care, Food & Drink and Agriculture. Most of these industries are unaware they are even conducting research and development, the definition of R&D is much broader than you think.
Research within R&D
Research and development always starts with an idea. The research part of R&D concerns itself with identifying if an idea is feasible. There are two main types of research within R&D, basic research and applied research.
Basis research is about gaining an understanding and acquiring knowledge of the matter at hand. Basic research is the first phase of any R&D project.
Applied research is research with a more specific goal than basic research. This is in-depth research that must be conducted before moving into the development phase.
Development within R&D
The design and development phase is where all the data and information gathered from the research is used to create (or improve) products or processes. This phase includes testing, prototyping and trials.
The Benefits of R&D
R&D is important to businesses that want to grow and stay competitive in an ever-changing market. Businesses that invest in R&D can expect to excel beyond their competition whilst making their own jobs easier in the process as new developments often result in smoother, more efficient ways of doing business.
On a wider level, R&D is a crucial element which impacts economic growth. The UK Government recognise this and incentivise businesses to invest in R&D for this very reason.
What kind of projects count as R&D?
Any project that has to overcome uncertainties to achieve its objective can be classed as an R&D project.
For businesses, R&D projects usually aim to create a new product, process, service or improve existing ones. If we were to list every single R&D project possible, the list would be endless, but to get a better idea of what R&D within business looks like, we recommend you check out some of our case studies.
Find out how much your claim could be worth with our easy-to-use R&D tax credits calculator. Remember – we can claim up to two years! Make sure you don’t miss out on the innovation funds you are owed.
The Cost of Research & Development
Research and development can be expensive. Adopting new technologies and employing specialised staff doesn’t come cheap. Hence why many company Directors are hesitant to invest in innovation especially when the costs involved must be paid for upfront and there is no guarantee that the project will even be a success.
The most common costs incurred by R&D projects include:
- Staffing costs
- Subcontractors
- Software
- Materials
The good news is that a proportion of these costs can be recovered through R&D tax credits whether the project was a success or not.
Claiming R&D Tax Credits
If your business invests in research and development, there is no reason not to make use of the R&D tax credit claim. A claim can be made in one of three ways:
- Submit a claim to HMRC yourself
- Ask your accountant to submit a claim on your behalf
- Use an R&D specialist to submit your claim
While we may be biased, we strongly recommend making a claiming via a specialist. Even if you don’t use Green Jellyfish, make sure you use a specialist. There are several good reasons for this:
- A specialist submits R&D claims all day, every day. They know exactly what HMRC are looking for.
- This expertise results in maximised claims
- The fee a specialist charges is more than made up for by ensuring a robust and fully maximised claim is submitted
Don’t get us wrong, we love accountants. They’re great at what they do but they aren’t specialised in the field. It would be like asking a car mechanic to service an aeroplane; sure, they might have some idea of what to look for, but they will possess no more than a rudimentary understanding.
Many accountants refer R&D cases to companies like ourselves – we work with accountancy firms up and down the country that trust us to submit R&D claims on behalf of their clients.
At Green Jellyfish, our award-winning team help businesses to innovate and succeed. Our work speaks for itself.