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Research and Development Tax Credits

2 August 2017

What are Research and Development Tax Credits?

Where a company has spent money on research and development, successful or not, it can claim tax credit as a reward for taking some risks to create products or solve specific business problems. The key terms are "innovate" and "uncertain outcomes".  So if money has been spent on developing a completely new product, then it can be easily argued that it is an involved innovation and therefore is eligible. Spending on IT and software is also often eligible but remember it needs to have involved innovation, not just buying a complex off the shelf product.
You may be eligible if you:

  • Develop of design new products
  • Test new products or develop samples
  • Invested in failed projects
  • Employ staff with a scientific or technical background
  • Improve manufacturing procedures/services

For more information on R&D tax credits you can refer to HMRC's own site here

Why are we interested in tax credits?

Well, even loss making companies or those in arrears with HMRC can claim them and in the case of arrears they can be used to offset the total liability. 

Can I claim a tax refund?

Yes! You can claim back two financial years worth. It should be remembered that often people are involved in R&D without actually realising i.e. a project can take up a proportion of time from a range of employees. Knowing how these costs build up and what is deemed as reasonable is the trick.

The process is normally very quick once the application is made to HMRC.  If you are interested in applying for them then it is worth getting a consultant to help you.  The fee is normally refundable if they fail to be able to get you a credit.  They will however need to check your eligibility first before committing to an audit/investigation.  We have teamed up with a firm that has helped our clients in the past.  If you are interested in getting a free assessment of eligibility then send me an email at
From April 1st 2015 the RD Tax credit is set at £230k.

In the meantime, companies can still claim back 24 months, with an average SME obtaining  an annual credit of £46k and a potential £138k if the first claim covers 2 previous accounting periods plus the current year.  The credit can be used in several ways; to reduce corporation tax on account, clear any arrears with HMRC, offset against past or future profits, or receive a cash payment alternative.  This is helping many qualifying SMEs with a welcome cash management solution.

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