R&D Tax Credits in the UK: What You Need to Know | MSF Associates

What Are R&D Tax Credits?

R&D tax credits are a government initiative that provides financial support to businesses that are undertaking R&D activities. In order to be eligible, your business must be registered with HMRC. The credit is calculated as a percentage of your qualifying expenditure on R&D.

What Activities Qualify for R&D Tax Credits?

To be eligible for the credit, your project must 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.

Your project must also meet one of the following criteria:

• Produce new or improved products, processes, services or materials;
• Create or reproduce prototypes;
• Develop new processes, systems or services;
• Improve existing processes, systems or services; 

Qualifying Expenditure on R&D

The following expenditure can qualify for the credit:

 

• Salary and pension costs of employees directly engaged in the project;
• Subcontractor costs;
• Materials consumed in the projects;
• Software used solely and specifically for the project; and,                                                                               
• Wastage arising from prototyping activity that would have been wasted had standard procedures been followed. 
  

How Much Is The Credit Worth?

If you're a loss making business the credit is worth 14.5% of your qualifying expenditure on R&D. This means that if you incurred £100,000 of eligible expenditure, you would get an enhancement rate of 130% applied to this, meaning your total eligible spend would be £230,000. On this you'd get £33,350 (14.5% of eligible spend) back as a tax refund or reduced tax liability.

If you're a profit making business it is slightly different. Say you've spent £100,000 on R&D eligible expenditure, you'd have the enhancement rate of 130% applied to this. So your total enhanced spend would be £130,000. On this you'd save £24,700 (19% of eligible spend) as a tax refund or reduced tax liability.

Need support with R&D Tax?

If you're thinking about undertaking R&D activities for your business, you may be able to claim tax relief through the Research and Development (R&D) tax credit scheme. To be eligible, your project must 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. If you think your project meets the criteria, get in touch with us to discuss your eligibility further.

MSF Associates are here to help with all your tax-related issues, both personal and company-related. We know how tricky it can be to understand the variety of tax implications, so we're here to help you make better-informed decisions and ensure you're being as tax-efficient as possible. Whether it's calculating the right amount of CGT or knowing when to pay off a directors loan account, our specialised staff are on hand to help you navigate the world of taxes. So why not give us a call today and see how we can help you?

If you require any assistance or are interested in our tax planning services, give us a call on 0113 240 4100 or contact us!