Do you qualify for R&D Tax Credits?

What's the R&D scheme about?

We are often asked this question and it can be difficult to give a simple answer.

First of all the R&D Tax credit scheme covers the whole of British industry though there are specialist schemes for a very few industries.

The scheme is designed to encourage innovation and keep intellectual development in the UK.

It's all about the 'D'

For most people R&D conjures up an image of scientists in white coats toiling in a research laboratory at Oxford University.

However, for the vast majority of companies it is the D letter, not the R, letter that is relevant.  Here's what matters to HMRC:

  1. Does your company undertake product development?
  2. Do you try and make your product greener, more efficiently, more cheaply?
  3. Are you trying to use more environmentally friendly production techniques or materials?
  4. Have you had to develop systems to enable you to do these things?

If your development work can be readily carried out by a competent professional with reasonable experience in your field, then it is unlikely that this will qualify.

If, on the other hand, you have had to sit-down, “scratch your head” and think ‘How are we going to do this?’, then it may very well qualify.

You do not have to be making industry changing developments but you do have to be able to demonstrate that there was a degree of difficulty involved, that you had to innovate or overcome some form of technical or scientific uncertainty and that your company undertook the work at its own expense.

You can be developing the most technically advanced product in the world, overcoming all kinds of technological obstacles and pushing the boundaries of human knowledge to unimagined limits on behalf of a client but, if you are being paid on a time and materials basis, regardless of the successful outcome of the project, you do not have a valid claim. On the other hand, if you undertook the project on a success fee basis, you would possibly have a valid claim.

Making an appreciable improvement to an existing process will also qualify as R&D

Does my company qualify?

For any company the most important question when looking at this scheme is to ask does the development work undertaken by my company meets the criteria of the scheme.

By answering the following five simple questions you will have gone a long way to answering that question

  1. Is your business a UK limited company?
  2. Have you, or are you developing your own products?
  3. Do you believe your company is innovating or trying to improve on what is currently available?
  4. Have you developed those products at your own expense?

Finally a more complicated question;

  1. When you were undertaking the development of your product did you have "to overcome technological uncertainties?” Was the work challenging and did it take the team several attempts to achieve the objective?

 What is "Technological Uncertainty"

To help explain what we mean by this phrase, we would ask - did you know exactly what you need to do or did the solution require “some head scratching”. Did the product or process require that the team whiteboard the solution and revise their original thoughts at any time?

If the development team didn’t know exactly how they might overcome the technical difficulties then there is something worth talking about.

What type of work may qualify?

  1. Manufacturing
  2. Design Work
  3. Software Development
  4. Improving internal processes
  5. Combining technologies in an original way

Allowable Expenses

  1. Staff Costs
  2. Consumables and raw materials (this may include software)
  3. Prototypes
  4. Sub Contracted costs
  5. Externally provided labour
  6. Heat , light, power
  7. Sub-Contracted Costs

Companies who have sub contracted part or all of the work can claim up to 65% of their costs

Sub-Contractors can be based anywhere in the world

Failed Projects

Under the scheme you are able to claim for projects that would have met the criteria but failed

They were either not technically possible at this stage or their cost outstripped any commercial benefit.

In fact failed projects are a good sign that your company is undertaking the right kind of work to qualify.

Assessing the situation

If you have no experience of assessing whether you have a claim you should call in a professional.

At no cost a professional R&D Tax credit consultant will be able to tell you whether the work undertaken meets the criteria of the scheme.

It is a valuable scheme allowing you to recover typically 25% of the development costs it really is worthwhile finding out whether your company meets the criteria.

How we help

If you would like to discuss your particular situation with an expert then please call us on 0207 743 6504.  Alternatively, click on the button below and send us an email.  We'll be in touch.