Below you will find answers to some of the most frequently asked questions we receive. Simply click a question to reveal the answer, you can click it again to then close that answer.
You can file one R&D tax credit application for each financial period in which you trade, provided eligible research and development activity continues to be undertaken by your company. Submissions can be revised alongside your CT600 for the two prior financial years, should you believe qualifying expenditure has been omitted.
The benefit from SME R&D tax credit submissions can be realised in several ways and is dependent on your tax position and profitability. Further details on the different kinds of recovery can be found on the “How does the benefit work?” section of our website. In general, you can expect to receive a benefit of between 14.5% – 33% of qualifying expenditure for SME applications, and 10.5% of qualifying expenditure for RDEC applications.
You can submit an R&D tax credit application after one period of trading. Following this, a claim can be submitted each financial period.
You can apply for R&D tax credits retrospectively for two prior financial years. These years are often covered in a single submission initially, following which applications for individual periods can be made.
For example, if your year end is December 2020, you are able to submit an application for the periods ending December 2018 and December 2019; following the conclusion of the December 2020 period, you will be able to submit another application.
There are several potential avenues for recovery when claiming R&D tax credits for a SME.
Staff costs including wages, Employer’s Class 1 NIC and pension fund contributions for staff directly and actively engaged in R&D can be recovered. Support staff costs associated with maintenance, clerical, administrative and security work relating to qualifying activities also qualify.
Consumable items are also allowable under the R&D scheme, that is, the cost of items that are directly employed and consumed in qualifying R&D projects, including utilities. Software that is directly employed in R&D activity is also a common area of recovery, especially if bespoke platforms are created or proprietary programs are enhanced through the integration of other systems or implementation of additional functionality.
Subcontracted workers and unconnected parties that are actively involved in R&D projects can also contribute towards the overall qualifying expenditure when applying under the SME scheme, however, the recovery is slightly lower. Some subcontracted activities can be recovered under the RDEC scheme, although the criteria are much more stringent.
We have a 100% success rate and have never had a query on any application we have compiled. If an enquiry is launched, we will deal with HMRC on your behalf so you can dedicate focus towards running your business.
Should you submit an application without our support (and HMRC decide to make an enquiry), they may study your company and request discussions with key personnel involved in the qualifying research and development activity to ensure it meets the definitions outlined in the BIS Guidelines.
We will never submit an application that we ourselves and you as a client are not comfortable with.
In short, yes. Although proper record keeping of R&D activities is encouraged by HRMC, many organisations are unaware the scheme exists. As such, HMRC will accept best estimate approaches for R&D claims if no detailed records have been kept. Following an initial submission, there is an expectation from HMRC for you to make efforts to more accurately track qualifying R&D expenditure, however, we help you implement the systems and structure to do so as part of our service offering.
To qualify as an SME, you must have fewer than 500 staff and either a turnover of under €100m, or less than €86m on the balance sheet.
If these criteria are not met, your company can still recover your R&D costs if eligible activity is undertaken, but it will be through the RDEC scheme.
Your total number of staff is calculated by considering all directors and employees on payroll; part time staff are included but are calculated differently. For example, if an employee worked four out of the five working days, they would count as 0.8 of a unit towards the headcount. Some staff are excluded from the headcount, including apprentices, students on vocational training and individuals on maternity or paternity leave.
Unfortunately, if you are partnered or linked to other companies, you could be disqualified from submitting an SME R&D tax credit application. The definition of a partner or linked enterprise is as follows:
Your company is considered linked when any of the following criteria are met:
- Another company or individual owns more than 50% of the voting rights
- Another company or individual has the ability to exert a dominant influence over your company
- Another company or individual has the power to appoint or remove senior management members
If your company is linked to another enterprise, the other enterprise’s headcount, turnover and balance sheet total must be aggregated into your own, which may affect your eligibility.
Your company is considered partnered when an enterprise owns between 25% and 50% of the shares or voting rights, or even if your company owns between 25% and 50% of shares or voting rights in another business.
Partnered enterprises will adjust your total headcount, turnover and balance sheet total by aggregating the relevant proportion of data of the partner companies with your own. For example, if an enterprise controls 30% of your business, 30% of their headcount, turnover and balance sheet total must be factored into your own when considering eligibility.
The nature of the grant funding will impact your eligibility under the SME scheme. As a business, you can only receive one form of notifiable state aid per project.
Notifiable state aid is state aid that has been notified to, and approved by, the European Commission.
SME tax credits and some forms of grant funding are classified as notifiable state aid. As such, receipt of grant funding would restrict the scope of recovery under the SME scheme. However, you would still be able to make an application for tax credits under the RDEC scheme.
We are happy to discuss the details of your grant funding and advise on the best approach for you.
For your SME R&D tax credit submission, you can expect to receive a benefit of between 14.35% and 33.35% of your qualifying expenditure, depending on your tax position. There is always the option to take the benefit at 24.7% but this may not yield an immediate cash benefit. This is, however, dependant on several factors, which our team would be happy to discuss with you as we learn more about your business.
A detailed explanation can be found here
Simply, if you do not qualify as an SME, and providing you are a UK company eligible to pay corporation tax, you are a considered a large company and will be required to submit an RDEC application to recover R&D tax credits.
For your RDEC R&D tax credit submission, you can expect to receive a benefit of approximately 10.5% of your qualifying expenditure.
A detailed explanation can be found here
Due to the broadness of the scheme, companies in every sector are carrying out qualifying activities, ranging from the development of new products to the integration of IT systems.
Put simply, if you’re trying to overcome a problem that you’re not sure how to solve, you may be doing R&D in the eyes of HMRC. If the statements below apply to your work, you could be eligible for a recovery:
- Making a process faster or more efficient
- Integrating various hardware or software to improve its functionality
- Attempting to make an existing product in a more cost efficient or environmentally friendly manner
- Developing an entirely new product, process or service
If you are unsure whether your activities qualify, please get in touch. We would be happy to guide you on your eligibility.
HMRC aim to process applications within 28 days. However, there have been many occasions where they have been processed faster and slower than this. Following the submission of your application, we will contact HMRC on your behalf to ensure the application is processed as quickly as possible.