R&D tax credits are growing in popularity, but there is still quite a lot of misinformation about what it is and who is eligible to actually recover the benefit. R&D tax credits themselves have been run by HMRC since the year 2000, and they do it as a way of investing in innovation within the UK. Now HMRC is not known for giving money away so a lot of people are uncertain as to why they run this incentive. But, they have done their research and they have found that for every £1 they invest in a company that is investing in innovation, trying to create new products, new services, and new processes, which drive their industry forward, they will indirectly stimulate an additional £1.50 to £2.30 of reinvestment in innovation. Also, innovation companies often have a competitive advantage, which will result in more tax revenue in the long run.
However, there are a few misconceptions about R&D tax credits that prevent businesses from using the scheme, which we will discuss in this blog.
You have to be a scientist or scientific company to claim R&D
The R&D tax credit scheme is for all industries, not just those that are science-based. An advance in science and technology is an objective of a project that is trying to do something better than the existing state of technology within the sector.
R&D can only apply to new products and services
Although a large percentage of R&D is used for new products and services, you can also use the scheme for internal processes and developing an existing product or service. For example,
trying to make a production process more efficient or environmentally friendly than it currently is. As quoted from HMRC: “Your project may research or develop a new process, product or service or improve on an existing one.”
You can only claim R&D tax credits when submitting your accounts for the year
You can claim for an accounting period that ends up to 2 years before your R&D claim is submitted to HMRC.
You need a minimum spend to reach the R&D qualifying activity
When the R&D tax credit scheme first launched, there was a minimum spend for claims of £10,000, but this was removed in 2012. However, HMRC has now introduced the PAYE cap as of April 2021, which limits the amount of credit you can claim from the scheme to 300% of your total PAYE/NIC liabilities. However, this affects only a smaller number of individuals and businesses.
You need a successful outcome to claim back the R&D
Even with an unsuccessful outcome of a product, project or service, you can still claim R&D. You can still claim all costs associated with the R&D process.
To find out more about R&D tax credits, you can click the link here.