One of the most common queries we receive here at Hamilton Blake Consulting concerns the eligibility of businesses for the R&D tax relief scheme. Many businesses aren’t sure if they’re entitled to benefit from the R&D tax relief incentive.
We’re here to set the record straight: businesses from any sector can potentially make use of R&D tax credits. This is because R&D is assessed on the work carried out, not on the business that does it.
Businesses that qualify
There are only three conditions that a business must meet to claim R&D tax relief.
- Be a UK-based limited company, subject to corporation tax
- Have conducted research and development, in line with HMRC’s definition
- Have spent money on certain ‘qualifying costs’ in the course of research and development
When it comes to what counts as R&D, HMRC has a precise definition. To qualify we have to show that on a particular project a company overcomes a technical uncertainty where the answer isn’t readily deducible to a competent professional. In reality, you can boil that down to 4 key questions:•
- Has the project attempted to find an advance in science and technology?
- Has it overcome uncertainty?
- Has it tried to overcome this uncertainty?
- Could the solution be easily worked out by a professional in the field?
Even if most of a company’s work doesn’t meet these criteria (which will be the case for 90% of companies), if they have just one project that meets this definition, they are eligible to claim for R&D tax relief.
HMRC has a specific definition of qualifying costs, too. The main qualifying costs associated with R&D are salaries (including employers’ NIC and pension), sub-contractor costs, software, and materials used in the production of non-saleable or exhibitable prototypes. Any other research and development expenses don’t qualify under HMRC’s scheme.
Eligibility for R&D tax relief is assessed on a project by project basis: it’s not about the business that does the work, it’s about the work that takes place.
This means that businesses from any sector may benefit from R&D tax relief. Of course, innovation is more prevalent in some sectors than others, simply due to the nature of their work.
Some of the most likely candidates for claiming R&D tax relief are architects, engineers, software developers, product manufacturers, and food and drink producers. But remember, as long as your work is innovative and overcoming uncertainty, you may be eligible for R&D tax relief.
What does R&D look like?
Since businesses from any sector may claim R&D tax relief, there is no ‘one true’ definition of what R&D looks like: it varies, depending on what industry it’s in.
As a general rule, however, there are certain activities that often qualify as R&D, no matter what sector they’re in:
- Designing new products or systems
- Making or manufacturing new products
- Developing new processes or ways of doing things
- Improving sustainability or environmental friendliness
- Creating new materials or exploring alternative uses for existing materials
- Making a process more efficient or scalable
- Making something safer
- Making something more cost-effective
If a particular project advances the course of science or technology, you may be able to benefit from the R&D statutory tax relief scheme, no matter what your business does.
The R&D tax relief scheme may benefit businesses of all sizes, of all sectors, regardless of whether the project was successful or not. It’s an all-encompassing incentive that can add a great deal of value to businesses. Most companies that make a successful R&D claim are reimbursed by several thousand pounds. That amount of money could make a real difference, especially during times of financial uncertainty.
For more information about eligibility for the R&D tax relief incentives, please get in touch.