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R&D Tax Credits – what you need to know

In this blog, Dave Philp, Head of R&D Tax from our partners CT, unpacks some of the basics around R&D tax credits.

What are R&D tax credits?

One of the most generous corporation tax reliefs currently available, R&D tax relief is designed to encourage innovation and increase spending on research and development activities. You can claim back money that you spend on R&D to offset against current or future tax bills.

What is R&D in the eyes of HMRC?

R&D covers any project that seeks to achieve an advance in science or technology ‘through the resolution of scientific or technological uncertainties.’ Generally, this means an advance in the overall knowledge or capability in a field of science or technology – not just within a single company. This includes improvements to existing processes.

Scientific or technological uncertainty?

Scientific or technological uncertainty exists when knowledge of whether something is scientifically possible, or technologically feasible is not readily available or deducible by a competent professional working in the field. In layman terms, there is no roadmap, and you are looking to push the scientific or technological boundaries.

Competent professional?

This means someone who knows their stuff! This could be someone who has acquired sufficient skills, knowledge, education and experience to be recognised as an expert in the field. 

How much can I claim? 

As of 1 April 2023, if you are a ‘R&D Intensive’ company, you can claim up to 27% of your qualifying spend back – cash in hand. ‘R&D Intensive’ is where you spend at least 40% of your total expenditure on eligible R&D. 

What costs are eligible?

Staff costs, materials that are used and transformed in the R&D process, software and data costs, subcontractor and Externally Provided Workers (think agency workers). Capital Expenditure is ineligible but is eligible for other types of relief (Capital Allowances).

How do I claim?

A claim is made via your company’s tax return. As of 1 August 2023, there is also a digital Additional information Form that needs to be submitted which requires a breakdown of costs across qualifying categories and a description of the R&D undertaken. Each claim needs to be endorsed by a named senior officer of the company and include details of any agent who has advised you on the claim. 

Things to watch out for?

There are a couple! Watch out for:

  • The new notification requirement.
  • The impact grants can have on claims, as well as 
  • PAYE restrictions to name a few. 

Always seek tax advice to ensure you are maximising your claim. 

Useful Links

To find out more, contact Dave Philp on: David.Philp@ct.me