This is the best known scheme, and the one with the most claims made each year. This page gives a brief summary of the scheme, but if you have more questions feel free to get in touch. It’s always best to have things in order before you actually make a claim, and we won’t charge you for any advice until we actually secure a successful claim for you!
The definition on a small to medium sized enterprise (SME) is quite broad, and can be summarised as follows:
- A limited company subject to UK corporation tax with
- less than 500 staff and
- Revenues of less than €100m or a balance sheet total under €86m.
A claim can be made at any time up to two years after the end of the “accounting period” – usually the company year end. Note that it doesn’t matter if you already submitted a corporation tax return – you can re-submit at any time up to the deadline.
One of the main exemptions from the scheme relates to where a project received “state aid”, for example in the form of a grant from InnovateUK. In that case, you may still be eligible under the RDEC scheme – take a look at this page for more details.
The definition of qualifying R&D is largely the same for both tax credit schemes, and is assessed on a project by project basis. That leads to the rather obvious point that a business must have set out from the start to achieve its “advance”.
- You must be trying to achieve an “advance” using science or technology. Advance is left quite vague given the huge range of possible work, but this generally means something that would be recognised as an appreciable improvement by a competent professional in the field.
- The advance will have been achieved via the resolution of uncertainty.
- The advance should not be “readily deducible” by a competent professional in the field, and correspondingly it is expected that the work be conducted by suitably qualified professionals.
To qualify, your costs must fall into one of several HMRC defined categories:
- Employee costs, e.g. Salaries, NI and pension contributions.
- Subcontractor costs – up to 65% of these may be eligible.
- Software if used for the R&D.
- Consumable items.
- Clinical trials volunteers.
Obviously we’ve glossed over a lot of detail here, but some notable exclusions are:
- Overheads such as rent, rates or land costs
- Capital expenditure (although some other reliefs may apply)
- IP costs (e.g. patents & trademarks)
The Value of a Claim
Once you have analysed your costs, the SME scheme allows you to deduct an additional 130% of those costs when calculating your taxable profit (or loss). For a profitable company, at the current corporation tax rate of 19% that works out as a saving equivalent to nearly 25% of your costs.
For a loss making company, for example a start-up developing a new product, you can actually convert the credit into a cash payment at a rate of 14.5%. Because potentially the full “enhanced expenditure” of 230% of the initial cost figure is included, this can actually work out as a cash payment of up to 33.3% of your costs!
How To Claim
Claims are made via the annual CT600 tax return, and will generally require a detailed report for HMRC explaining the nature of the R&D and how the costs have been calculated. Naturally this is where WOCO comes in, handling the whole process for you. If you’d like to chat through whether you might have a claim, get in touch here.