R&D tax credits

R&D tax credits can give you a big cash refund or tax saving!!!

Did you know that for every £100k spent on R&D, you can get a cash refund of £33k if loss making, or tax saving of £43k if profit making?

The cash refund will be subject to a cap from April 2021: https://www.mah.uk.com/cap-on-rd-tax-credits/

Research and Development tax credits is a scheme by the HMRC which provides tax relief to businesses carrying out R&D projects for the purpose of achieving an advancement in science or technology, and which resolve scientific or technological uncertainties.

If you intend to carry out such a project, and meet the tax definition, then MAH can help you apply for all of the R&D tax credits relief your business is entitled to.

We have worked with a number of research and development businesses and helped them claim for R&D tax credits relief. This means that we have the experience and knowledge to process your R&D tax credits relief claim and take it all off your hands. 

Some of the projects we have assisted with include:

     – AI deeptech & bigdata

     – Financial trading algorithms and robotic trading

     – Marketplaces & e-commerce

     – Mobile phone applications

     – Website/software platforms and SaaS

     – In-house software/tools for traditional businesses

How does the relief work?

More in depth information can be found at http://www.hmrc.gov.uk/ct/forms-rates/claims/randd.htm.

However, the basic points are as follows:

Key benefits

• There is 130% additional tax relief on eligible expenditure, so for every £100 spent on R&D costs, the tax benefit is £230

The tax relief can decrease a tax payment, or it can increase tax losses, which can then be offset against future profits

Alternatively, if your business is a small to medium sized company making a loss, then you can choose to receive a CASH sum from HMRC of 14.5% of the surrenderable loss:

Surrenderable loss is the lower of:

i) The unrelieved trading loss ie. including all other non-RD expenses


ii) 230% x R&D expenses

Case Studies of MAH clients 

1) Cash refund: A client who spent approximately £1m in one year on eligible R&D costs and received a cash refund of approximately £333k as they were loss making. We obtained an understanding of what they do, wrote a technical report and identified the eligble costs.

£1m eligible costs * 230% R&D uplift * 14.5% surrendered = £333k refund  (ie 1/3 of cost)

2) Tax saving: We have a client who has a traditional, established business and noticed that they were using a lot of bespoke tools and software in-house. We asked them about it and learned that they regularly update the software themselves and add new features and functions. We then reduced their tax bill by approximately £24k.

£100k eligible costs * 230% R&D uplift * 19% corporation tax = £43k (ie 43% of cost) total tax saving.

(they would usually have saved £100k*19%= £19k anyway, so the extra benefit from R&D claim is £24k)

Do you qualify? – Key definitions and criteria

DTI Guidelines 2004 (enforced by Parliamentary regulations) defines R&D, and defines whether or not you quality for relief. Some of the paragraphs state:

Paragraph 3: R&D for tax purposes takes place when a project seeks to achieve an advance in science or technology.”

Paragraph 4: “The activities that directly contribute to achieving this advance in science or technology through the resolution of scientific or technological uncertainty are R&D.”

Paragraph 5: Certain qualifying indirect activities related to the project are also R&D.” 

What does this mean?

This means that a project may qualify for R&D tax relief if the project results in a new or appreciably improved:

     – Process

     – Material

     – Device

     – Product or service (paragraphs 8-9)

AND if there are uncertainties which cannot be readily resolved by a competent professional in the field (paragraphs 13-14)

Concerned that technology may privately already exist? You could still qualify

In paragraph 6 of the guidelines, there is a requirement which states that there must be an advancement in overall knowledge or capability. At first, many companies may feel that this doesn’t apply to them. However, as shown in paragraph 11:

“If a particular advance in science or technology has already been made or attempted but details are not readily available (for example, if it is a trade secret), work to achieve such an advance can still be an advance in science or technology.”

This means that technology may already exist privately, but if you are carrying out R&D for the purposes of unlocking a trade secret like this, then your project may still qualify for R&D tax relief.

As well as this, many software or R&D companies are deterred from claiming as they assume that only the biggest companies can claim for R&D if they are creating new technologies. However, if you have a new algorithm or piece of code which is not routine, then your project (or parts of it) may still qualify.

Which costs qualify?

  • Qualifying costs include employee pay, materials, software, utilities and more

  • SME’s can also claim subcontractor costs in certain circumstances, but the eligible cost is restricted to 65% of the amount spent.

Intellectual property rights 

Even if you do not to own the intellectual property rights to any R&D, you could still qualify for tax relief.

Claims process – what needs to be done?

To qualify for R&D tax credits relief and continue receiving this relief, the project involved should be well documented, and records should be kept to show when R&D started and stopped. Details should also be recorded of all R&D work carried out. Whilst HMRC do not require detailed breakdowns of all of the R&D costs involved, there are a few sections to be filled in on the company tax return, and some calculations must be made.

Another key part of the application process is that a narrative must be submitted with the tax return to HMRC, which explains why the project is entitled to tax relief. This does not necessarily have to be very long, but it must touch on a specific set of points.

Sound complicated? We’re here to take it off your hands and make it effortless

As you can see, MAH has an in-depth knowledge of the entire process, and considerable experience in scenarios where HMRC investigates a claim, so if you want an expert to handle the entire process and make sure it’s carried out correctly (from applying for relief to documenting the project), then call MAH, Chartered Accountants today to speak to a specialist.

Book your free no obligation consultation

A free, initial, no obligation consultation is available, where we can check whether you are likely to qualify and then explain what we can do. To book your consultation, email us or call 020 7100 3610.