What is the R&D Tax Credit Scheme?

The original R&D Tax Credit scheme was an EU initiative that was aimed at SME's and was designed to allow some recovery of  development costs that companies had invested or would invest in the future into innovative product and manufacturing processes.

The British Government, following pressure from industry and the CBI introduced a scheme for big companies. Although the schemes are different they both have bearing on SME's as quite often the activities of the SME are defined as subcontracting R&D for the big companies and claims have to be made in either that scheme or both schemes at the same time. The R&D tax credit scheme is a key part of the Governments strategy to boost innovation in business.  Credits reduce the real cost of investment, improving products and processes.

The UK government introduction of a big company scheme had detrimental effects on the SME scheme as benefits such as tax credits do not apply to R&D subcontracting SME's. Additionally, the scheme was modified from the 1st April 2008 reducing the retrospective claims down from 6 years to just 2 prior years and at the same time increasing the claim benefits, in the case of small businesses to 75% and large companies to 30%.

HMRC believes there are potentially over 150,000 SME's alone that could benefit from the scheme. However, the off take to date remains relatively low, particularly in comparison to Europe, at around 6,600 SME companies for the financial year 2008-2009, receiving £80,000* on average. Whilst during the last few years a greater proportion of the eligible big companies have made full use of the scheme.

The fundamental problems for SME businesses are, the distrust of government in general, the concern about success if resources are committed to a claim and the general complexity of Government schemes anyway. In addition, the communication and marketing of the scheme has been poor the responsibility unclear as to the rules with HMRC even disputing the dti's original guidelines on the definitions of the scheme and how it should work.

*The average Government Research and Development (R&D) Tax Credit Claim for small and medium sized businesses (SME's) is approximately £40,000 per accounting period for each of the past two years.

What is R&D

  • Projects that seek to achieve an advance in science and technology
  • Or projects that simply advance overall knowledge on scientific or technological capability
  • Or projects that seek to make an appreciable improvement to an existing process, material device, product or services through scientific or technological changes.

These terms need to be put into everyday language  businesses understand.

How you qualify for the R&D Tax Credit Scheme?

  • Is your business involved in manufacturing, engineering, medical, pharmaceuticals, electronics, communications, media, publishing, software, and transportation for example?
  • However, the scope is far greater than these alone.
  • Are you involved in innovating, improving, developing or adding value to products or manufacturing processes?
  • Does your design or manufacturing involve specially engineered products, components, or software?
  • Are the products and processes capable of being IP protected?
  • Do you have product improvement programs?
  • Can time spent on development projects be ascertained in a reasonable and demonstrable way?
  • Are you involved in time consuming iterative processes and trials?
  • Have you developed new techniques for faster production or improved quality?
  • Do you have products designed but never launched?
  • Do you do bespoke customer focused work?
  • Do you co operate in development with supply chain and key suppliers?
  • Are you a UK limited company that's been in business for at least 12 months?
  • If you are a subsidiary of an overseas company they may still qualify, although the compensation may be reduced
  • Do you employ fewer than 500 people?
  • Are you making National Insurance contributions?
  • Are the Tax Contributions at least £20,000 per annum?
  • Is turnover less than c£84m annually?
  • Is net worth less than c£70m?
  • Remember, you don't have to be making a profit to make a claim.
  • Additionally, claims can be made for failed projects that aren't completed or taken to market.
  • Making Income Tax payments of £10,000 plus, including National Insurance Contributions, may make the claim quite small but advice is still available about developing a claim productively.

* Anything above these levels would simply take you into the large company scheme which will have reduced relief benefits compared to the SME scheme.

 What should I do if I want to work with GGTC?

  • Contact a member of our team now by calling 01727 738601 or email, This e-mail address is being protected from spambots. You need JavaScript enabled to view it to arrange a free appointment and evaluation to discover how much your company may be entitled to.

Recommend others to claim

Qualifying R&D activity may not be obvious or recognised as such, particularly in some sectors
 
Whilst a significant element of company’s activities relates to R&D, it may not be obvious to certain companies in some sectors that they may conduct activities which qualify for R&D tax credits. It is worth considering this each year and at least ensuring that those personnel responsible for tax compliance and those involved in technical activities within the company are aware of the relevant criteria for R&D tax credits.
 
We would recommend that companies do claim, where eligible, R&D tax credits as this can be beneficial while a company is in its phase of establishing products, services and a customer base. It is also beneficial through the time a company is expanding its product portfolio, and later by reducing the effective total tax charge when a company is generating taxable profits but at the same time continuing to invest in innovative work to sustain or grow its
product or service portfolio.