Research and development (R&D) tax credits are a great way for your tech company to claw back some of the costs you incur during your work.
How much you can claim will depend on the size of your company, though, so it’s essential to understand which of the two schemes you may be eligible for.
Here’s everything you need to know about research and development tax credits for tech companies.
What are R&D tax credits?
R&D tax credits are a way for innovative companies to reclaim some eligible expenditure from their work. If your company is eligible for credits, you can use them to reduce your corporation tax bill.
There are currently two R&D schemes companies can apply for.
Firstly, there is the R&D expenditure credit (RDEC). This is predominantly aimed at larger companies, although SMEs can use it if they carry out subcontracted work for a large company.
Secondly, you have the SME scheme, which you can only apply for if you have:
- less than 500 staff
- a turnover of under €100 million or a balance sheet total of under €86m.
If your tech company has any partners or linked enterprises, you’ll have to consider this to work out if you’re an SME.
How R&D credits work for your tech company
Each R&D tax relief scheme has a specific amount your company can potentially claim, whether it’s down to a loss or just for the costs you incur during your project.
The SME scheme allows companies to:
- Deduct an extra 86% of qualifying costs from your yearly profits, as well as the usual 100% reduction.
- Claim a payable tax credit if your company has claimed relief and made a loss. The payable credit is worth up to 10% of the surrenderable loss.
Meanwhile, the HMRC calculates the RDEC percentage at the following rates (depending on the tax year you’re claiming for):
- 12% from 1 January 2018 up to and including 31 March 2020
- 13% from 1 April 2020 up to and including 31 March 2023
- 20% from 1 April 2023.
What work qualifies for R&D tax credits?
Before you claim R&D tax credits, you’ll need to know what can and cannot be part of your claim.
R&D activities fall into two main categories:
- direct, e.g. research, testing
- indirect, e.g. providing training, hiring staff and security.
Routine activities are not eligible for R&D claims. This could be something like marketing or product packaging design, as they
don’t contribute to research or towards a scientific breakthrough.
You can claim R&D relief even if your project is unsuccessful, as you’re still trying to provide an answer to an industry uncertainty.
R&D claims can be made up to two years after the end of the project in question.
Don’t let your work go to waste
Due to the complex nature of the tech industry, and the amount of graft that goes into your work, you should claim back as many costs as possible. Even if your project doesn’t go to plan, you might still be able to lower your corporation tax bill.
We work with R&D-intensive businesses like yours to ensure they can continue their innovative work. If your company needs help with its R&D claims, contact a member of our team.