Research & Development (R&D) tax credits are a reward paid by HMRC to companies that are innovative and take risks.

What is an R&D tax credit?

R&D takes place when an activity seeks to achieve an advance in science or technology. The tax credit, which was designed to encourage innovation, allows costs – mainly for staff and consumables – to be claimed back from HMRC as either a cash credit or a reduction in the company’s corporation tax bill. There is no set industry where R&D can take place so it can apply widely, from science and technology through to manufacture and design.

What are the benefits?

If a small company qualifies for R&D, the allowable costs are grossed up by 225%. A percentage of the grossed up figure – 14.5% from 1 April 2014 – can then be claimed in cash from HMRC immediately. For example, if you have spent £100k on qualifying R&D activities, it is grossed up to £225k, and a cash credit of 14.5%, i.e. £32,600 is paid back to the company. Alternatively the grossed up figure of £225k can be set against the company’s corporation tax bill. The rules are slightly different for large companies.

Latest figures from HMRC show that £420m credits were paid out to 9,875 small and medium sized companies last year, an average of £42k per claim. The majority of claims were made by companies in London and the South East.

We have a dedicated team of professionals ready to assess whether you qualify for R&D and to put forward your claim to HMRC. Please contact us for more information.