Frequently Asked Questions
This Government scheme has been now twenty years in operation. The UK Government provide billions of pounds in financial support every year to enable companies to undertake R&D. R&D takes many forms and it’s not all done by “men in white coats”. Most R&D takes place in order to resolve an existing challenge at work.
A tax credit is either taken as a cash lump sum or taken forward on the books as a credit against future profits or losses. Most clients prefer to take the cash. Even loss making companies are eligible to claim tax relief on the expenditures that they have incurred in undertaking qualifying R&D activities.
R&D is a Corporation Tax (CT) tax relief that may reduce your company’s tax bill if your company is liable for CT or, in some circumstances, you may receive a payable tax credit. This guidance is designed to help you make a claim for tax relief if you are an SME.
The overall aim is to encourage firms to undertake R&D as ultimately it boosts the economy.
The Research and Development Expenditure Credit (RDEC) scheme was introduced in the Finance Act 2013 — it enables companies with no CT liability to benefit through a cash payment or a reduction of tax or other duties due.
For tax purposes, R&D takes place when a project seeks to achieve an advance in overall knowledge or capability in a field of science or technology. Even failed projects are eligible for consideration.
R&D has a specific statutory definition for the purposes of R&D tax relief which is not the same as the commercial, engineering, or accounting definitions.
To qualify the company must be carrying out research and development work in the field of science or technology. The relief is not just for ‘white coat’ scientific research but also for ‘brown coat’ development work in design and engineering that involves overcoming difficult technological problems.
This can include creating new processes, products, or services, making appreciable improvements to existing ones, and even using science and technology to duplicate existing processes, products, and services in a new way. However, pure product development in itself does not qualify. Neither do marketing activities qualify?
Some examples of qualifying activities include software development, engineering design, new construction techniques, bio-energy, cleantech, agri-food and life and health sciences.
If limited companies carry out activities which can be defined as a project which seeks to achieve an advance in overall knowledge or capability in a field of science or technology, then they can claim tax relief on their annual CT600. Most firms never make a claim even though they are eligible. The reasons for this are many.
However, the majority of companies do not recognise that their activities are qualifying R&D. In addition, failure to support the claim with an evidence based narrative will enhance the quantum of the claim and provide HMRC with information that is vital to ensure that the claim is compliant with the terms of the scheme.
If you are based in the UK and have challenges at work that require a solution then you are probably undertaking R&D. We apply tried and tested theoretical models in order to identify and describe the root causes of the problem, and to describe how you approached the matter. It doesn’t matter usually whether you actually developed a final solution. Even failed and long term projects can qualify for relief. the Commercial failure of the product or project does not mean that R&D was not present. In addition, if the scientific uncertainties weren’t overcome, that can still mean that the work to address the uncertainties can be R&D.
All limited companies based in the UK, which undertake a project with the aim to achieve an advance in overall knowledge or capability in a field of science or technology. The project does not have to be carried out in the UK.
R&D takes place when a company carries out a project which seeks to achieve an advance in overall knowledge or capability in a field of science or technology. Many companies who work with us have not been able previously to determine “what is a project” and consequently the start date is unknown. That is where we can assist. We have extensive experience in identifying, defining and describing qualifying R&D. We provide our clients with an evidence-based narrative report, which clearly describes all aspects of the project and the company’s commitment to R&D.
You claim R&D relief by entering the total qualifying expenditure on the full Company Tax Return form, CT600. However, many companies fail to qualify their claims with a narrative report. Most of the narrative reports submitted don’t include sufficient validated evidence to substantiate the claim. This can be problematic, as the tax inspector may carry out an audit of the claim in subsequent years. Keeping good records is essential also it is necessary to provide irrefutable evidence of the R&D.
Under the SME scheme, SMEs that prepare their accounts on a going concern basis may be able to claim a payable tax credit .
If your company has been undertaking qualifying R&D and has not yet claimed R&D relief, you may make a backdated claim within the anniversary of your filing date — generally two years after the end of the accounting period. If firms wish to submit backdated claims we find that it is essential to seek the advice of specialists in the field of providing evidence based narrative reports. Over 95% of our clients have undertaken qualifying R&D and have never claimed previously.
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