The research and development tax credit is a great way for start-ups to receive funding for their R&D costs. If your claim qualifies, you will be able to get back almost one-third of your total spend.
But it can be confusing completing your claim. That’s why we’ve put together this post to give you R&D tax credit guidance on what expenditure qualifies for a claim.
Anne Rose, Head of Tax at Burgis & Bullock, runs through who qualifies and what expenditure can be included in a claim for R&D tax credit in this blog.
What is R&D tax credit?
The research and development tax credit was put in place by the UK government as an incentive for companies to undertake activities that will help them innovate and grow.
Unlike other business expenses, such as marketing or office space rental, R&D costs can be used to generate a cash payment from HMRC.
The scheme rewards innovative behaviour and companies that are seeking to develop new products, processes and technologies.
There are two schemes, the SME scheme and the Large company scheme, with the SME scheme being the most generous.
Who qualifies for R&D tax credit?
To qualify for R&D tax credit the business first of all has to be a company, it cannot be a sole trader or a partnership. Any company that is doing innovative work has a right to claim for this tax relief.
You can only start to claim when you have incurred qualifying costs!
Here are the three main qualifying criteria you need to hit:
- Must be performing qualifying research and development activities
- Qualifying research is defined as an activity that has the potential to contribute to increasing industry knowledge about a technological advance.
- This includes any process involving experimentation, exploration, creation or invention where there is no certainty whether any results will be achieved
One particular aspect that can cause difficulty is that you can only include expenditure which is incurred after when HMRC would agree you have started an R&D project and before it finishes by HMRC guidelines.
Businesses often want to include everything from the minute they have a first thought about something, but HMRC will say you can only claim after you have assessed your goals, how you are going to get there and identified the technical difficulties in doing so.
You can claim from then up to when you have figured out how to achieve your goal and then the claim stops before production level.
