The R&D Tax Relief Scheme was introduced in the U.K. in 2000 to support and reward companies undertaking the costly and sometimes onerous business of research and development. This guide aims to give you an idea of how to assess your client’s R&D tax eligibility, and how WhisperClaims can help you do this in a straightforward, consistent and time-efficient way.

Scheme Eligibility

SMEs can claim R&D tax credits through the SME scheme, which is open to solvent registered companies with fewer than 500 staff, and a turnover of under €100m or a balance sheet total under €86m. As long as they’re doing eligible R&D (more on this later…), there are no other hoops to jump through! For claim periods starting after 1st April 2023, loss-making SMEs who spend more than 40% of their total expenditure on qualifying R&D can qualify for the R&D intensive SME rate. 

Companies with more than 500 staff, or a turnover of over €100m and a balance sheet total over €86m, must claim a Research and Development Expenditure Credit (RDEC).

Details of the current rates of relief can be found here, but as a general rule SMEs can claim up to 15-27% of eligible expenditure, and Large Companies can claim 20% of eligible expenditure.

What is an eligible project?

But what is eligible expenditure? We’ll get to that soon, but first we have to work out what an eligible project is, which can be the hardest part of claiming R&D tax credits, and depends on several HMRC definitions. Basically, you need to show that your client’s projects:

• aimed to make an advance in an area of science and technology

• involved technological uncertainty

• made efforts to overcome this uncertainty

• couldn’t have been easily worked out by a professional in the field

But wait! What is an advance? And, for that matter, what is a technological uncertainty?

These are HMRC’s terms, and have fairly straightforward definitions:

Technical or Scientific Advance: a project outcome that creates an advance in an overall field of science or technology, not just for your client’s business or sector.

Technological Uncertainty: something that isn’t known to be scientifically or technologically feasible at the beginning of the project – basically, if your client is a technical specialist in their field and isn’t sure that they can achieve the scientific or technological aims of the project, you’ve got technical uncertainty!

What is eligible expenditure?

So, now that you’ve worked out which projects are eligible for R&D tax relief, you need to identify your client’s eligible costs associated with the work. These fall into five main categories:

• Staff costs, including pensions and bonuses

• Subcontracted costs

• Raw material costs

• Utility costs

• Software costs

The main things to remember when collating costs is that the total figures must line up with your client’s P&L account, and HMRC expects apportionments to R&D projects to be fair and reasonable.

Here’s a quick worked example:

Company A employed four people to work on their eligible R&D projects. Each of these people was paid a salary of £25,000, and spent around 40% of their time carrying out project-related activities. The company also spent £100,000 on raw materials during the claim year, of which 25% was consumed by R&D activities. The company also paid for a licence for specialist software for use in the R&D projects, costing £3000 in the claim year.

So, what would the total eligible cost be?

How and when do you claim R&D tax credits?

The R&D Tax credit scheme enables your clients to reduce their corporation tax liability, get a refund of tax that has already been paid, or, in the case of loss-making companies, receive a tax credit. To claim R&D tax relief, all you have to do is fill in certain boxes in your client’s CT600 Corporation tax return form.

The timelines for claiming R&D tax credits are strict – you must submit any claim within two years of the end of the accounting period in which the work took place. HMRC will not process any claims submitted after this deadline.