What are R&D tax credits?

What are R&D tax credits?

The R&D tax credit is a UK tax relief available to businesses that invest in R&D during the development of new products or processes or to upgrade previously developed products. Regardless of your area of business, you can obtain R&D tax credits for spending money on research and development.

Does my company qualify for R&D tax credit relief?

Does my company qualify for R&D tax credit relief?

A company seeking to remain competitive needs to devote considerable resources to R&D. The R&D tax credit scheme enables innovative businesses to expand or improve their products by providing funding.

The following conditions must be met for your business to qualify:

Limited company based in the UK that pays Corporation Tax.

  • Involved in relevant development or research.
  • Invested in research and development.
  • If you’re considering claiming R&D tax credits, Redditus has resources that help you determine whether you qualify or not.

Here you can check your eligibility, or call a member of our team to find out if you qualify.

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What activities qualify for a grant?

What activities qualify for a grant?

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The R&D tax credit may be available as long as you make a scientific or technological advance, regardless of how you implement the process. It could be an effort to create a new product, process, or service. 

HM Revenue & Customs has published guidance on the types of activities that qualify for a tax credit:

  • Dedicated to advancing science and technology.
  • To eliminate uncertainties or attempted to resolve uncertainties.
  • Ideally, the project shouldn’t be something the same field of expertise could understand or complete easily.
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What exactly constitutes R&D?

What exactly constitutes R&D?

In order to receive a tax credit for R&D, you need to know which expenses you are eligible to claim. Most R&D expenses can be claimed on a revenue basis, i.e. day-to-day operations costs, but not capital expenses (land and building costs) or expenses associated with the use of a trademark for identification of your products and services.

Personnel costs

All costs related to employees that worked directly on R&D projects including gross salaries and benefits.

Resources

The costs of using up or consuming your R&D resources, such as water, fuel, and electricity, can be claimed.

Clinical research participants

Only applicable to pharma companies, payment to volunteers in clinical trials can be reimbursed.

Technical software

 Software that led to or supported R&D, provided it was developed or purchased specifically for the project.

Outsourced R&D

You can include an amount for outsourced R&D if it was allocated for an agreed amount.

Our Process

Our Process

Using our knowledge and experience, Redditus will ensure that you get the best results. By leveraging our knowledge, we can translate the regulations into the language you understand. With this information and our understanding of taxation, Redditus will assist you with the process of putting the money back into your company.

1
Understanding who you are

Redditus understands that each business is structured differently. Our job is to find out what matters to you and your business, your position in the market, and your future goals. Our flexibility allows us to work around the time constraints of your business. Specifically, the process of working together and how we work together is typically discussed at this meeting.

2
Data collection

Despite the fact that Redditus is responsible for the majority of the work in preparing your claim, we require your input. As part of the eligibility criteria, HMRC outlined a set of guidelines, and our technical analyst will explain what these guidelines are and identify which of your products or services are eligible for R&D Tax credits.

3
Creation of a claim report

A technical report outlines your products' or services' processes, investment details, and proof of the costs related to their creation. An HMRC report must include a particular level of detail, and one of our internal teams makes sure this is included. You will be sent a draft of the report before it is submitted.

4
Processing the claim

The technical report will be submitted to HMRC once you have signed it off. Besides our confidence in the process, if there is a question from HMRC, Redditus will deal with it on your behalf.
Upon approval of your claim and HMRC payment, we will directly transfer the funds and explain how the R&D tax credits were determined and credited.

FAQ

FAQ

SMEs can claim upto 33p & Large companies can claim upto 11p on every pound spent on R&D activities. Based on what type of research you are doing and whether the work is completed in-house or through an external contractor, the cost may vary.

Maintain records that prove the expenses you claim on your tax return as you would for anything else. Generally, this includes financial evidence that you paid the expense, organizational records showing that the expenditure was for a qualified purpose, and organizational records indicating how an expense was allocated among the qualified and non-qualified purposes when a total expenditure was incurred for more than one business purpose.

R&D Tax Credit recipients are less likely to be audited by the IRS, but there are always random audits of all tax returns.
It is important to remember that the R&D Credit does not operate as a tax evasion scheme and that there are clear rules as to what can and cannot be claimed.
So long as you determine your eligible expenses with your accountant and provide proper documentation, finding a credit shouldn’t be a problem in most cases.

For the credit, eligible expenses must relate to qualified research. The following expenses are generally eligible:

  • Compensation for employees
  • Resources
  • Contractual services

During each accounting period in which businesses undertake qualifying activities, credits may be claimed for R&D tax credits. No limit exists to the number of times that a claim can be made.

No. That’s a consumable expense. All of the costs should be related directly to the development of the product. After an uncertainty has been resolved, R&D activities should cease. Costs associated with packaging are not claimable since they are incurred during this phase.   

The company will be considered to file a claim if it is developing packaging that meets the R&D qualifications.

Yes. The R&D Tax Credit is a particular tax credit, so HMRC has set up specialized teams throughout the country to deal with it. As soon as the tax claim is submitted, the company’s tax affairs will be transferred to the district that deals with its business; specific districts deal with specific industries.

Accounts should reflect R&D Tax Credit claims under the SME scheme. Any reimbursement is exempt from taxable income.  

A different regulatory position applies to companies applying for the RDEC scheme, as company income is taxable. RDECs do not reduce tax obligations, but rather act as payment against them. 

Contact Us

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Phone

01543 386500

E-mail

advice@redditus.co.uk

Address

Unit 4 Three Spires House, Station Road, Lichfield, Staffordshire, England, WS13 6HX

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    At Redditus we pride ourselves in offering the highest quality of advice. We are passionate about innovative, entrepreneurial people and projects, where we can build a research and development strategy, but with the accuracy and quality of our work being at the forefront of everything we do.

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