R&D Tax Credits
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Guide Summary
Below we’ve created 6 simple sections to help you understand how R&D tax credits work and whether your business could make a claim.
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?
IT & Software
Engineering
Manufacturing
Care
Food & Drink
Agriculture
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 and Development of your project
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. Once the research has been completed, the development stage of the project begins.
Basic Research
Basic 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
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
R&D Development
The design and development phase is where all the data gathered from the research is used to create/ improve products or processes. This includes testing, prototyping and trials
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.
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.
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, you should definitely consider making use of the R&D tax credit claim scheme. A claim can be made in one of three ways:
Submit a claim to HMRC yourself
Use your accountant to submit the claim
Use an R&D Specialist to submit a claim
Why use a specialist?
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:
It's what we do
A specialist submits R&D claims all day, every day - it's what we do
Maximised claims
A specialist knows exactly how to get the most out of your claim giving you a larger refund
Proactive approach
A specialist will compile the claim and submit it to HMRC for you
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.
Claim Value Estimation:
£12,350
Sample R&D calculations:
Profit-making SME with £50,000 innovation spend:
£50,000 x 130% Expenditure Enhancement = £65,000
£65,000 (Enhanced Expenditure Value) x 19% Corporation Tax = £12,350
Profit-making SME with £50,000 innovation spend:
£50,000 x 230% Expenditure Enhancement = £115,000
£115,000 (Enhanced Expenditure Value) x 14.5% R&D Surrender Rate = £16,675
R&D FAQs
Check out the R&D frequently asked questions below, we have done our best to cover everything we can. If you do still have any further questions please do not hesitate to call us on 033 000 20010 or using the contact form here.
Research and Development relief was introduced by the government in 2000 to encourage UK businesses to invest and enhance the fields of Science and Technology. It is a technique to reward businesses across all sectors by allowing them to claim back some of the money they spent on advancing innovations.
To qualify for the scheme, UK companies must have R&D projects running in an attempt to advance scientific or technological products, services or processes.
When you book in a telephone consultation, one of our expert team will chat through your business and its potential qualifying R&D activities. Don’t worry if you aren’t sure what qualifies, we know the right questions to ask to find out.
- We will handle all the paperwork for you
- Get the money you’re eligible for quickly and painlessly
- Utilise our experience to get the best possible result
- You only pay us if your application is successful
- Enjoy an exceptional service from our expert team
- Telephone consultation – One of our expert team will chat through your business and its potential qualifying R&D activities. Don’t worry if you aren’t sure what qualifies, we know the right questions to ask to find out.
- Preparing your information – Following the call, we’ll pull all your information together. Working in this area means we understand what HMRC are looking for, so we can ensure we have everything they need to make the claim successful.
- Submitting your claim – Our comprehensive service which includes the technical write up will ensure your claim is submitted correctly. We deal with HMRC on your behalf, so you don’t have to.
- Getting approval – Claims are typically approved within six weeks and we aim to pay your refund on the same day we receive it. We’ll only charge you a fee if your claim is successful.
Your company size will influence how much you can claim for. SMEs can claim around 14-33% on any costs which qualify. For Large companies, a credit amount of 8.8% is available under the Research and Development scheme.
Research and Development is a government scheme which aims to support companies that work on innovative projects in science and technology. It can be claimed by a wide range of businesses that do research and development to advance or improve.
The Research and Development Scheme isn’t available to all businesses in the UK – you must be a limited company.
However, if your business conducts a lot of research and development, going limited may be in your best interest. This is something we can advise you on.
No, they cannot – Only companies accountable for Corporation Tax (limited companies) can claim Research & Development Tax Credits.
Depending on your company size, R&D Tax Rates can differ. SMEs are classed as companies with below 500 employees and can claim a higher percentage than Large companies.
You can claim for any qualifying costs which have been made in the last two accounting years of the company.
Projects must meet certain criteria to qualify for Research and Development. This includes researching and developing ways to overcome technological advancements in Science and Technology. This could be developing new or existing products, services, or processes.
Yes – The idea of R&D is to reward businesses for innovating, not only successful or completed projects.
Yes – the purpose of the scheme is to encourage companies to undertake projects for innovations. It is about companies investing in developing new or enhancing existing products, services, or processes.
R&D Tax credits can be paid in three different ways – cash credits, a Corporation Tax rebate, or an expenditure that you may take forward against future profits.
All we will need is a copy of your accounts and CT600.
Our standard fee is 15% of the refund amount, with our minimum fee being £1,500.
Once we have all the necessary information, we can submit your claim within 1-2 working days. Once HMRC receives our submission, they typically pay out the money within 4-6 weeks.
Possibly. Though this is usually a request for more information, and we deal with this on your behalf. We have a 100% success rate so while HMRC may come back to us with a few questions, we have never had a claim rejected.
Get in touch
Let’s talk about your R&D Claim