Many of our clients run innovative businesses that are pushing the boundaries of their fields with products and services built on cutting-edge technology. Such companies, in most cases, can largely benefit from R&D tax credits, recovering significant percentages of their investment.
R&D Tax Credits are put in place by HMRC to encourage those companies that work on science and tech projects and are making advances in their respective fields.
On average, companies that work on R&D projects claim £46,000 each year as tax reliefs, as a support from the government to innovative science and tech businesses. These reliefs are available both as 46% of your R&D spend off your Corporation Tax payable, or as 33.5% cash back. Here at Ignition, we helped a range of scale-ups like ClauseMatch get this type of funding for their R&D projects.
In order to be eligible, you need to show how your project tried to overcome an uncertainty while looking for an advance in science and technology that a professional in the field couldn't easily work out. The allowable expenditure includes staff costs, subcontractors and freelancers you hired for the project completion as well as consumable items you used. You can book a free consultancy with Ignition to learn more about how much spend, depending on your project, you can claim R&D reliefs for.
Said advance, as Revenue and Customs specify, needs to contribute to your whole field. Not just your business. In short, an eligible project must aim at creating a product, process or service that no one else has accomplished in your field before.
A second requirement is that your project can’t be known to be feasible until you’ve completed it. That’s why you’ve invested in R&D in the first place!
HRMC requires you to document how you used R&D to complete your project. That should include the whole process of research, testing and analysis that brought you to the development of your new technology, product or service.
Finally, you will need evidence that other experts were trying to overcome the same issue and failed. Alternatively, you can show how people working on your project are industry experts themselves, and get them to explain the uncertainties and challenges involved in your project.
There are two main ways for you to benefit of these reliefs:
A profitable Scale-Up can claim an enhanced expense of a further 130%. For example, £100k of R&D becomes a deduction of £230k against taxable profits and reduces the tax bill by £46k (£20k being corporation tax relief, and £26k being the enhanced R&D relief).
A loss-making Start-Up can request a tax credit to be repaid to the company. This is at 14.5% of the loss. For example, an R&D spend of £100k is firstly enhanced to £230k and then relief calculated at 14.5% results in a refund of £33.35k, which is roughly 33% of your initial spend.
You can download our one-page PDF guide to R&D Tax Credits by completing the form below.