What Costs Qualify for R&D Tax Credit Claims?

Changes to Research and Development (R&D) tax credits means many businesses will be able to benefit from the reduction in corporation tax as a result of the research projects they have or are undertaking. However, exactly what constitutes as R&D needs to be narrowed down and correctly documented to HMRC.

Which companies are eligible for R&D tax credits?

The government’s R&D criteria are purposefully broad. Whatever size or sector, if your company is taking a risk by attempting to ‘resolve scientific or technological uncertainties’, then you may be carrying out qualifying activity. The R&D project(s) need to demonstrate an attempt to make an advancement in a scientific or technological field with the exception of social sciences e.g., economics or theoretical fields such as pure maths. The R&D activity needs to be part of your company’s trade currently or intended as a future business, depending on the outcome of the R&D. Most importantly, you will need to demonstrate that the R&D is attempting to benefit your industry sector and not just your own particular business.

Which activities qualify for R&D tax credits?

It is worth exploring as to whether your company qualifies. Activities that constitute as R&D costs include:

• Developing a new or significantly improved product, service or process
• Implementing a project with an element of risk as the outcome was uncertain due to technical constraints
• Implementing a project that presents a technical challenge that is outside of the industry norm
• Implementing a project that had unusual or significantly challenging environments, conditions or configurations
• Employing staff including scientists, engineers, architects, software developers or technicians
• Developing in-house software

In addition, you could be an SME that has subcontracted out any of these activities and still recoup the tax savings if you can provide sufficient documentation.

How can you claim R&D tax credits?

It is essential that anyone wishing to claim for R&D tax credits fills out their company’s tax return form (CT600) with enough documentation to demonstrate the eligibility of qualifying projects so to avoid any dispute on the claims. As with anything HMRC related, the devil really is in the detail and employing a specialist is essential to avoid discrepancy or missing out on claiming for projects that could be eligible. At Mercer & Hole, we have the knowledge and expertise to ensure you don’t miss out on potentially large savings your R&D projects could make you, so please don’t hesitate to contact me or my team if you would like any help or advice.