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There are two schemes for making an R&D claim, depending on the size of the company or organisation; the Small or Medium-sized Enterprise (SME) Scheme and the Research and Development Expenditure Credit (RDEC) scheme for large companies.
Today we're going to discuss the possibilities for making an R&D claim for tax relief.
A company is usually defined as an SME if staff headcount is less than 500 and either turnover is less than €100m, or balance sheet total is less than €86m. There are a number of further considerations that must be taken into account when determining if a company is defined as an SME such as group structures and whether grants are being received.
If an SME does not qualify the company can elect to claim using the less generous RDEC scheme.
Does My Project Qualify for R&D Relief?
You need to be able to demonstrate to HMRC that your project sits firmly within the tax definition of R&D. Whilst R&D relief may seem very limited in scope there is actually a wide range of projects that can qualify for relief across many different industry types and businesses.
The advance being sought by the research must in some way constitute an advance in the overall knowledge or capability in a field of science or technology. The research must have a wider application than just solving a company’s own state of knowledge or capability alone.
Apply for Advance Assurance
Smaller SMEs applying for R&D relief for the first time can apply to HMRC for advance assurance. This means that for the first three accounts claim periods, HMRC will allow the claim without further inquiries.
However, the application process is only open to those with a turnover of less than £2m and less than 50 employees can apply. This measure was introduced in 2015 and has given confidence to smaller companies to make an application for advance assurance and thereby have certainty that tax relief will be forthcoming.
What Costs Can I Claim?
Any costs that you claim R&D relief for must relate to the project in-hand. The main areas of costs that can be claimed are:
- staff costs
- agency workers/externally provided workers
- sub-contractors/freelance workers
- software license costs
- consumable items
Capital expenditure does not qualify under the R&D scheme, nor does expenditure on the production and distribution of goods and services
Making an R&D Claim
Making a claim for this relief can be difficult. It is important to be well organised from the outset. Furthermore, you must have a proper system for recording and identifying all qualifying costs relating to your project. This can be very worthwhile as the R&D credits are a very valuable tax relief.
We have highlighted below some of the most important steps your business must take in order to claim R&D tax credits. Obviously, we cannot cover all the steps in as much detail as required. If you would like any further information, please get in touch here.