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Five essential eligibility criteria for an R&D tax credit claim

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Cactus plants representing R&D tax credit eligibility criteria
To the uninitiated, there is a great deal of confusion around research and development (R&D) tax credits. Quite often, the innovative businesses we speak to have never heard of them, don't think they're eligible, or just aren't sure if the work they're doing really is innovative.

With so much to gain from making an R&D tax credit claim, we’re keen to ensure as many companies as possible benefit from this government initiative. That’s why we’ve put together a simple checklist to help you identify if you might be eligible.

R&D tax credits eligibility checklist:

Filed a Corporation Tax return

Any company that is subject to UK Corporation Tax is potentially eligible for the government’s R&D tax incentive. It doesn’t matter what sector your business falls into, whether you’re a large company or an SME – or if you’re profitable or loss making. Any eligible costs incurred within your previous two accounting periods can be included.

Spent money on qualifying activities

If you haven’t spent anything on innovation, then it stands to reason you’ll have nothing to claim back. So costs are vital. Assuming qualifying activity has occurred, then it’s possible to claim back expenditure relating to staff costs, both direct and indirect (for example, your developers plus the person who manages the company payroll) plus subcontractor costs. Consumables – that’s costs for items such as materials and heat, light and power – can also be recouped as well as some software costs.

Carried out qualifying activities

This might seem obvious but many businesses don’t even realise their work is classed as R&D! The government’s definition of R&D is deliberately broad. This is so it can be applied across any sector. Your work is classed as R&D when your activity resolves ‘scientific or technological uncertainty’. In the real world, this could include overcoming design challenges using technology, writing ground-breaking software or experimenting with new flavours or recipes. If you’re in any doubt, you can check with us.

Identified competent professionals

In any claim, HMRC want to see evidence that you’ve achieved an appreciable improvement in the work you’re doing. You will have to identify a ‘competent professional’ (or several) within your business who can describe the advances you have made and help to support the innovation that’s taken place.

Identified the correct R&D scheme

There are two different schemes, depending on the size of your company. The first scheme is specifically for SMEs, that’s companies with fewer than 500 staff, and then either turnover of not more than €100 million or gross assets not more than €86 million. Larger companies that fall outside of this range can claim the Research & Development Expenditure Credit also known as RDEC.

So that covers many of the essentials that must be met for an R&D tax credit claim. Now for a couple of surprising criteria that are not essential…

A successful outcome

Innovation is driven by trial and error so even if you haven’t managed to achieve a successful outcome from your project, you may still qualify for an R&D tax credit. You just need to demonstrate that you were seeking to make an advance in your area of work.

Projects within your own business

If you’ve undertaken R&D as part of a client project, then that can form part of your R&D tax credit claim too. According to research ForrestBrown carried out, only 31% of business leaders correctly understood this!

Claiming R&D tax credits for the first time?

If you’re new to R&D tax credits, we can help you get started and set you up for your future investment in innovation. We will adapt to your business, offering a bespoke service to meet your unique requirements.

Every day at ForrestBrown we’re working with innovative companies from across a wide range of sectors who are carrying out R&D. And many of them had no idea until they spoke to us! If you think your business may be involved in qualifying work, give us a call and we can help you reap the many benefits of an R&D tax credit claim.