Today, we’re taking it back to basics. 

Research and development (R&D) tax credits are nothing new. The government incentive designed to promote innovation within British industries has been available to businesses since the start of the millennium, with thousands of forward-thinking companies sourcing subsidies to accelerate their research and development.

The scope for R&D availability is huge, existing in every sector. While this can potentially spell great news for SMEs looking to grow, getting to grips with eligibility is, of course, key.

That’s why we’re created this no-nonsense guide to R&D tax credit eligibility, helping you better understand whether R&D is a viable avenue for your business’s growth.

The fundamentals

First things first - to be able to claim R&D tax credits, your business must meet this basic criteria:

  • Your business must be a UK limited company that pays Corporation Tax
  • You must have invested in qualifying research and development projects

Research and development can take place in every industry, meaning R&D tax credits are available to anyone from tech companies to distilleries.


How is R&D defined?

The official criteria for what constitutes research and development is broad to remain flexible across a diverse range of industries - but as a rule of thumb, this generally includes any project that: 

  • Aims to innovate a new product, operation or service
  • Aims to innovate a modification to an existing product, operation or service

It’s also important to note that your R&D project doesn’t have to be successful to claim back credit. Regardless of the end result, an eligible R&D project is able to claim money back on:

  • Staff salaries (including NIC, pension contributions and any expenses)
  • Materials and consumables used throughout the project
  • Software
  • Clinical trials
  • Freelancers and subcontractors

Which scheme is for you?

There are two types of R&D schemes available to businesses, and which one your company is eligible for depends on the size of your business.

SMEs, generally defined as any company with under 500 staff, under €100 million turnover or Net Assets less than €86 million should look to claim through the SME R&D tax credit scheme. That being said, it isn’t uncommon for SMEs to face eligibility restrictions as a result of existing grants and subcontracts. If this is the case, you may need to apply through the alternate scheme (or both!).

The alternative scheme, RDEC (Research and Development Expenditure Credit), is typically available to larger companies with over 500 staff. In April 2020, the RDEC rate was increased from 12% to 13%, meaning RDEC is worth up to 10.53p for every £1 spent on qualifying expenses.

Understanding your eligibility for R&D tax credits is the first step in your journey to subsidising your company’s innovation and growth. For help with the next steps along the way, get in touch with LUMO today.

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