What is an R&D claim – and how can my business access funding?
The government is committed to increasing spending on research and development (R&D) by UK businesses, and has earmarked £39.8m for 2022-2025 to do just that. But many firms are still unaware that financial help is available, are unsure about whether they carry out R&D, or simply ask ‘what is an R&D claim?’
As a result, millions of pounds of government R&D tax credits are not being claimed by eligible businesses, who would find the money invaluable to help fund future growth.
While R&D is a key driver of productivity, innovation and economic growth, spending on R&D in the UK is growing very slowly, with Office of National Statistics (ONS) figures showing the lowest percentage growth since 2013.
For businesses that are battling a rising cost of living, supply chain disruptions and skill shortages, R&D may seem like an additional expense that they don’t need. After all, in 2020, 75% of business R&D in the UK was funded by the businesses themselves – that’s £20.3m that companies had to find within their budgets.
But what if some of the cost of the R&D you need to move your business forward could be claimed back? Here we consider ‘what is an R&D claim’, who is eligible, and how to take the next steps.
What counts as R&D?
For tax purposes, R&D takes place when a project seeks to achieve an advance in overall knowledge or capability in a field of science or technology. This includes:
- Advancing science or technology within your industry
- Displaying innovation and seeking to make advancements
- Process of creating or modifying new or existing products, processes or services, or enhancing existing ones
- Developing engineering architecture
- Overcoming scientific or tech problems with products you have developed
- Developing experimental models and prototypes
- Percentage of costs of the above – whether projects succeed or fail
What is an R&D claim / R&D tax relief?
In 2000, the government introduced a scheme to incentivise businesses to carry out scientific and technological innovation. R&D tax credits were a Corporation Tax (CT) tax relief, helping reduce companies’ expenditure on R&D by claiming back tax for R&D investment.
R&D relief enables companies that carry out qualifying R&D related to their trade, to claim an extra CT deduction for certain qualifying expenditure.
The level of relief available depends upon which scheme the company uses:
The SME scheme
An SME is defined as a business with less than 500 staff and either turnover of less than €100m or a balance sheet total of less than €86m.
Since 2015, the relief a company can claim is 230% on their qualifying R&D costs.
New businesses that are not yet making a profit can in certain circumstances surrender their losses in return for a payable tax credit.
Research and Development Expenditure Credit (RDEC) scheme
The RDEC scheme was introduced in the Finance Act 2013 — enabling companies with no CT liability to claim a cash payment or a reduction of tax or other duties due.
Since 2015, a taxable credit is available at 11% of qualifying R&D expenditure. For companies not yet making a profit, the tax credit is fully payable (subject to certain restrictions).
Companies with no CT liability can receive either a cash payment or a reduction of tax or other duties due. The payable credit is limited to the company’s PAYE/NIC liabilities of the staff engaged in qualifying activities in the accounting period.
Businesses can claim RDEC if they subcontract or carry out subsidised research. Companies in groups can surrender the RDEC against another group company’s CT liability.
Is my business eligible for an R&D claim?
Latest government figures from April 2022 show that only around 85,900 tax credits were claimed in 2019-20, with £7.4bn awarded.
To be eligible for R&D credit, your company needs to be UK-based, but can be a limited company of any size and in any sector.
R&D claims can be made for staff costs, utilities (water, heat, power), materials, subcontractor costs or software, for the two most recent accounting years.
That sounds like a large pool of possible claimants, but how do you take the next step?
Many businesses, of all sizes, have to guess their way through the applications for R&D tax refunds. And most accountants and R&D firms need more in-house expertise to help companies claim the most complete credit.
With HMRC taking a closer look at claims, an approved method is the only way forward.
You must be sure everything on your application qualifies as research. If you are going to maximise your R&D claim—without taking chances—you need guidance from experts who know what an R&D claim is, and how to create a credible claim.
How Grantica can help you access funding
As a specialist in R&D for UK companies, Grantica can safely and securely help businesses identify R&D within their activities through our accredited Grantica R&D Framework™.
Grantica’s HMRC-compliant strategy for R&D is unique. Our chartered engineers and tax advisors handle everything for you, offering a professional opinion and complete transparency at every step.