Research and Development (R&D) tax credits offer valuable financial incentives for science and technology firms in the UK, encouraging innovation by offsetting certain costs associated with R&D activities. Recent changes to the R&D tax credit schemes, effective from April 2024, have introduced a merged scheme applicable to both small and medium-sized enterprises (SMEs) and larger companies.
Does your company qualify?
To qualify for R&D tax relief, a project must aim to achieve an advance in science or technology. This includes systematic work to resolve scientific or technological uncertainties, leading to new knowledge or improved processes, products, or services. Notably, from April 2023, advancements in pure mathematics are also considered eligible R&D activities.
What can you claim?
Companies can claim relief on various costs directly associated with R&D activities, including:
- Staff costs: Salaries, wages, and other expenses for employees directly involved in R&D projects.
- Subcontractor costs: Payments to third parties conducting R&D on behalf of the company.
- Materials and consumables: Costs of materials and resources consumed during R&D.
- Software: Expenses for software used directly in R&D activities.
Accurate record-keeping is essential to substantiate claims and ensure compliance with HMRC requirements.
Will a grant affect my tax credit claim?
The receipt of grants or subsidies can affect the type and amount of R&D tax relief a company can claim:
- State aid grants: If a project receives a state aid grant, it may disqualify the project from the SME scheme, necessitating a claim under the less generous Research and Development Expenditure Credit (RDEC) scheme.
- Non-state aid grants: Projects funded by non-state aid grants may still qualify for SME relief on the portion of expenditure not covered by the grant, with the grant-funded portion claimable under the RDEC scheme.
Assessing the nature of any grants received to determine their impact on R&D tax relief claims is crucial. If you have any questions, we’re here to help.
Recent changes and considerations
The Autumn Budget 2024 confirmed that the current rates of R&D tax relief would remain unchanged, providing stability for businesses planning their R&D investments.
However, the merger of the SME and RDEC schemes into a single R&D Expenditure Credit regime, effective for accounting periods beginning on or after 1 April 2024, introduces new rules and considerations. Notably, there are restrictions on including overseas costs unless specific exceptions apply, and subcontracted R&D costs are now eligible under certain conditions.
Seeking professional advice
Cutting through the details of R&D tax credits requires a thorough understanding of the eligibility criteria, qualifying expenditures, and the impact of grants and subsidies. The recent consolidation of R&D schemes and the stability in relief rates offer a more streamlined approach, but companies must stay informed about the specific rules and documentation requirements to maximise their claims.
Science and technology firms should proactively review their R&D activities and associated expenditures to ensure they are fully leveraging available tax reliefs. Engaging with tax professionals or advisers experienced in R&D tax credits, like us at Business Partners, can provide valuable insights and assistance in preparing accurate and compliant claims, ultimately enhancing the financial benefits derived from innovation efforts.
