What are the benefits of claiming R&D tax credits?

Since the launch of HMRC’s Research and Development Tax Credits, the benefits of the scheme have increased significantly, so there has never been a better time to claim.

R&D Tax Relief applies to both profit making companies paying Corporation Tax and also loss-making companies who are not. R&D Tax Relief can be received as lowered corporation tax or in some cases as a payable cash credit. The calculations are many and varied so the simplest way to help you understand what you might get in the form of SME tax relief (dependent on a number of contributing factors of course) is around 25p for every £1 you have spent on eligible activities.

How much could your R&D tax credit claim be worth?

The exact figure you can claim in R&D tax credits will depend on a variety of factors, such as the size of your company, its tax rate and how many of your activities are eligible. Smaller companies, for example, can claim at a higher rate and qualify for extra financial support if they're loss making.

Simply speaking, companies can deduct up to 230% of qualifying expenditure (typically staff costs, software, sub-contractor costs if an SME and any raw materials consumed) when calculating their profit for tax purposes. What's more, you can claim R&D tax credits on expenditure that's up to three years old.

From 1 April 2015, SMEs can recover up to 26% (if in profit) and 33.35% (if loss-making) of eligible expenditure, while Large Companies can claim back up to 6%. So if a profitable SME spends £100,000 on eligible work from 1 April 2015 to 31 March 2016, it would receive up to £26,000 as an R&D tax credit. A Large Company spending £1m would receive up to £60,000 of R&D tax credit benefits.

SMEs are companies with up to 500 people, with revenues that don’t exceed €100m or assets that don’t exceed €86m. Large Companies are any companies that don’t pass these tests.

Making a claim

There are a number of ways that you can claim for R&D tax relief. You can claim yourself, through your accountant or through a specialist service provider such as Jumpstart. However, it’s important to understand the implications of your choice and the consequences that can be generated.

The accountant route is often assumed to be the logical choice because it is a tax process. However, estimations show that overall accountants are only claiming for approximately 10% of the potential eligible relief for their clients due to understated claims or claims not being made.

We will work with your accountant to maximize your R&D tax credit claim.

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