Does your R&D Claim qualify?
The reason many firms across a variety of industries don’t claim for HMRC R&D tax credits is that they are unsure of whether or not their claim would be successful. Given the complicated nature of tax claims, this is understandable. However, HMRC has outlined what kind of activity qualifies, meaning that businesses can claim with a little more confidence. Here, we summarise how HMRC measures if your claim qualifies in the sector.
It’s not all lab coats and goggles
A common mistake companies make is thinking that laboratories with scientists are the only thing that make a project eligible for tax relief, but this is misguided. According to HMRC, R&D projects must simply ‘seek to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty – and not simply an advance in its own state of knowledge or capability.’
The wording is deliberately broad so that a range of activity is encompassed. Eligible projects may involve the development of new software, the identification and resolution of design constraints in new environments, or the discovery of a land regeneration technique.
HMRC measures eligibility by ascertaining whether a competent professional in the field could have reached the same outcome without unduly stretching their resources. If they could not, there’s a high chance the project will be awarded R&D tax credits.
You don’t have to succeed
If your company is taking risks in the process of developing new products and services, or improving existing ones, your work is likely to be eligible for HMRC R&D tax credits.
This is not to say that the project must succeed. Indeed, the scheme is designed to reward efforts to innovate rather than successful outcomes. If expenditure has been made, therefore, on qualifying costs such as staff salaries, consumables and utilities directly related to the R&D work, they can be recouped.
Size doesn’t matter, but structure does
Whether you are a small or large company, you can still claim for qualifying R&D activity. However, the rates of relief differ depending on size.
Broadly speaking, to claim under the SME scheme, a business must comprise fewer than 500 employees and either generate an annual turnover of under €100 million or have a balance sheet of less than €86m. If these figures are exceeded, the company must claim under the less generous RDEC scheme.
The structure of an organisation, however, is a factor in determining whether it’s eligible for R&D tax credits. Because the relief is typically applied as a reduction in corporation tax liability, only those businesses that pay UK CT can benefit from it.
Grant funding changes things
If, however, your business has received Notified State Aid grant funding for an R&D project, your ability to claim HMRC R&D tax credits will be affected. It may be that any qualifying expenditure that isn’t covered by the grant must be claimed for under the RDEC scheme, even if your business is an SME according to the HMRC criteria.
Is your work eligible?
For help with determining whether your R&D activity is eligible for tax relief, contact R&D Tax Solutions in Manchester today. Offering specialist services to companies in a variety of sectors, we are well placed to assist with your claim.
