What is R&D tax relief?

Did you know that companies are claiming up to 33% of their research and development expenditure back as a tax credit?

Research and Development (R&D) tax relief is a valuable way that the UK Government aims to encourage growth and reward companies investing in innovation. The money claimed back can be used to financially support your business and help it growth.

The key is uncertainty and advancement

The UK Government’s Research and Development Tax Relief scheme is remarkably inclusive and companies in any sector can be eligible. Both profitable and loss making companies can benefit from an R&D tax relief claim. A loss-making company can surrender the losses incurred in carrying out R&D for a repayable cash credit. You can claim R&D tax credits retrospectively for up to two years after the accounting  year-end date.

What qualifies as innovation in the eyes of HMRC?

For tax purposes, R&D takes place when you are creating something that will advance the overall knowledge or capability in a field of science and technology. In simple terms, if you are solving industry problems, creating new software, materials or aiming for a particular outcome but are unsure you have all the answers to get there because it’s uncommon and goes beyond established methodologies, you have a potential R&D claim.

What costs qualify?

To successfully claim R&D tax relief, a business needs to understand what the qualifying costs are. HMRC has specific guidelines of the types of cost that are eligible and not eligible, and we teach you about all of them in our R&D tax software Novel.

Depending on whether a company is loss-making or profitable, a start-up can receive between 18.9% and 33.4% of its R&D costs back.

For certain cost categories, you can claim a percentage back on all the costs incurred, such as staff costs, but for others, only a portion of those costs can be claimed back. If you are using Novel for your R&D tax claim, the software will do the apportionment of the costs for you in accordance with HMRC requirements.

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How to claim

R&D tax reliefs are administers by HMRC and the claims are filed via the company’s CT600 corporation tax return. The benefit comes in the form of corporation tax (CT) liability reduction or cash credit from HMRC. A profitable company can reduce its CT payable or claim a refund on CT already paid. Taxpaying companies can claim up to £26 back for every £100 spend on R&D, while loss making companies can claim up to £33.

Claims can be made within two years of the end of their related accounting periods and the benefit which can be expected will range between 19% and 33% of the R&D expenditure.

Are you using Novel for your R&D tax relief claim?

If you are using our software Novel to prepare the technical and financial narrative to strengthen your R&D claim, you will be able to export the report and have the correct expenditure figures. Record the relevant R&D expenditure in the CT600 and attach the report produced in Novel to the form. 

Can you claim be submitted after the original or first CT600 has been filed?

The short answer is yes. It is possible to submit an R&D claim as an amendment to the CT600. For more steps on how to do it, visit Novel, and find the submission instructions in your profile or reach out to one of us using the chat.

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R&D Tax Rates

The rate of relief that companies can claim depends on the size of the company, and whether the company has received a grant or is a subcontractor. On average, SMEs are able to claim up to £33 for every £100 spent on qualifying R&D activities. Large companies are able to claim up to £10 for every £100 spent on qualifying R&D activities.

Can Novel help?

Novel was specifically created to help start-ups and SMEs claim R&D Tax Relief. Due to the bespoke financial apportionment mechanism within the software, at the moment, Novel can only help businesses claim the SME relief. Stay tuned for when we expand into the RDEC scheme.

Have more questions?

Want to find out more about R&D tax relief or how Novel can help you file your claim? Get in touch with us to discuss.