R&D Tax Credits

What’s here?

What is R&D

One of the single largest funding mechanisms for business, the R&D Tax Credit Scheme benefits businesses designing, developing and producing new products and manufacturing processes, including in-house software development. By allowing companies to recover the costs invested in innovative product and process, this government initiative is in place to ensure Britain remains at the forefront of manufacturing and innovation.

From projects seeking to achieve an advance in science and technology, to activities that make an appreciable improvement to an existing process, product, material, device or service through scientific or technological changes, the benefits realised for organisations involved in these activities can be quite significant.

Company activity indicative of scheme qualification: does or is the company:

  • Involved in innovating, improving, developing or adding value to products or manufacturing processes?
  • Design or manufacturing’s involve specially engineered products, components, or software?
  • Have product improvement programs?
  • Time spent on development projects ascertained in a reasonable and demonstrable way?
  • Involved in time consuming iterative processes and trials?
  • Developed new techniques for faster production or improved quality?
  • Have products designed but never launched?
  • Carry out bespoke customer focused work?
  • Co-operate in development with supply chain and key suppliers?

Claims can be made for failed projects or products not taken to market.

R&D can be undertaken in the majority of Industry sectors. The scope is greater than those listed below;

  • Mechanical, Chemical and Electrical Engineering
  • Energy, Water and associated technologies
  • Information Technology, Telecommunications, Software & programming
  • Manufacturing
  • Construction
  • Pharmaceuticals
  • Automotive and Transport
  • Aeronautics, Shipping & Defence
  • Food & Drink
  • Healthcare & Education
  • Banking & Financial
  • Publishing & Media
  • Business Services

HOW2 KnowHow

How to qualify – Scheme eligibility criteria

The R&D Tax Credit scheme benefits businesses designing, developing and producing new products and manufacturing processes, including in-house software development.

  • You need to be a UK Limited Company that has been in business for at least 12 months and be making PAYE contributions.
  • Employing fewer than 500 people. Employing more than 500 people qualifies for the large company scheme.
  • Annual turnover less than €100m (c. £84m)
  • Balance sheet less than €86m (c. £70m)

How to Claim – The Claim Process

1. Free, no commitment assessment of R&D Tax claim opportunity

2. Complete technical and financial evaluation

3. Submit claim to Accountant for filing with HMRC

4. Accountant completes the tax and CT600 work as normal

5. Claim is filed to HMRC by the Accountant

6. Respond to any HMRC challenges, queries and inquiries

7. HMRC issue payment, with average time to cash from filing a claim around 42 days.

The Technical Bit

The Scheme

The Research and Development, R&D, Tax Credit scheme is an EU initiative that is aimed at small and medium sized enterprises, SME’s, and seeks to recover development costs that companies have invested in innovative product and manufacturing processes. The UK Government subsequently introduced a large company scheme, LC’s.

The R&D Tax Credit scheme is a key part of the Governments strategy to boost innovation in business. Credits reduce the real cost of investment, in improving products and processes. Defined R&D costs are enhanced to increase taxable costs and reduce profits or create losses. This data is contained only on the CT600 tax return and has no effect on the filing information available to others through Company’s House.

£1.2bn was given back to UK companies during 2011-2012, over £8.0bn since 2000. In excess of 10,000 companies benefited in the last financial year and over 24,000 different SME companies since the scheme began, however 150,000 potentially qualify.

The up-take to date remains relatively low, particularly in comparison to Europe. Part of the problem is the communication and marketing of the scheme. The terminology that’s used in the official communication describes the scheme as “R&D in the fields of science and technology”. This creates a false impression that only pharmaceutical and aerospace businesses need apply.

The scheme has become more attractive to business over recent years.

  • From 1 April 2012, the rate of R&D tax credits for SME’s increased from 100% to 125%.
  • The Government reduced the main rate of corporation tax, the rate fell by 2% from 26% to 24% in April 2012, to 23% in April 2013 , 22% in April 2014 and 20% in April 2015.
  • Effective April 2013 the Government will introduce an above the line (ATL) R&D Tax credit. This will have a headline tax benefit rate of 10% and enable loss-making companies to claim cash credits.
  • Tax credits are available at the pertaining Corporation Tax rate.

    The average HMRC R&D Tax Credit claim for SME’s is £ 43,000 pa, and £300,000 for LC’s. Companies can retrospectively claim back 2 financial years. HMRC stated average time to cash from filing a claim is 42 days.

    Most companies are eligible to take advantage of the R&D Tax Credit scheme, significantly more businesses qualify than believe.

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