What are R&D Tax Credits – Daniel James Tax

What are R&D Tax Credits

What is R&D?

R&D actually stands for research and development. It is a matter in which you will take some idea and transform it into a full-fledged product or process. Creating, designing, researching, and testing are all components of the R&D process.

What are R&D Tax Credits?

R&D tax credits are an incentive offered by the government to businesses so they can develop innovation throughout a variety of industries. This is a great opportunity for companies to reduce their corporation tax bill or obtain a refund from HMRC depending on the number of working hours that your business has spent on R&D.

This scheme allows SME’s to claim up to 33% of the costs related to R&D. In other words, it is 33p payout for every £1 spent on any eligible R&D activities.

What sectors perform R&D?

R&D can be conducted in any sector as well as in any businesses regardless of its size. Nevertheless, some of the common sectors that perform research and development are Agriculture, IT & Software, Food & Drink, Engineering, Care, and Manufacturing.

Research within R&D

When it comes to research and development, it always begins with an idea. In R&D, the research part is all about recognising if an idea is feasible. Generally, there are two major types of research associated with R&D. These are the basic research and applied research.

Basis research involves acquiring an understanding and knowledge about the matter at hand. Actually, the first stage of any R&D project is basic research.

Compared to basic research, applied research has a more specific goal. This is considered as in-depth research that should be done before advancing to the development phase.

Development within R&D

All the data and information that were gathered during the research stage will be used in the design and development phase to assist in creating or improving processes, products, or services. This stage involves different processes such as trials, prototyping, and testing.

What are the benefits of R&D?

R&D is essential for businesses that desire to grow and remain competitive in this ever-changing market. Businesses that spend some money for R&D can expect to exceed beyond their competition. At the same time, they can make their lives better since most often new developments can likely result in a smoother, more effective way of doing business.

On a large-scale level, R&D plays an important role in economic growth. The government in the UK was able to recognise this, that is why incentives are provided to businesses that choose to invest in R&D.

What types of projects can be considered as R&D?

An R&D project refers to any project that has the ability to overcome uncertainties or unknowns so they will be able to achieve their goal.

On the part of businesses, R&D projects most often are aimed at inventing new processes, products, or services or enhance the existing ones.

We can help you in working out how much you can claim. Keep in mind that you can claim up to two years so be sure that you don’t miss out anything on your innovation fund.

The Cost of R&D

The fact is, research and development can be very costly. Additionally, hiring specialised staff and using new technologies does not come cheap. This is the reason why a lot of company directors are reluctant to invest in innovation, most especially, when the costs that are required have to be paid upfront and consequently there is no assurance that the project will become successful.

The common expenses that are required for R&D projects include materials, software, subcontractors, and staffing costs. Luckily, you can recover a proportion of these costs through R&D tax credits.

How To Claim R&D Tax Credits?

For businesses that invest in research and development, it is advisable that they should take advantage of the R&D tax credit claim. If you want to make a claim, then you can use one of these three methods:

  • You can submit your claim to HMRC yourself.
  • Let your accountant file the claim on your behalf.
  • Hire an R&D specialist to submit the claim for you.

We strongly suggest that you should make the claim through a specialist. Although, this may sound a bit biased, however, there are a lot of good reasons why you need to use a specialist.

  • A specialist can submit your R&D claim anytime. These specialists are knowledgable on what HMRC are looking for.
  • Since they are an expert on these, then they are capable of maximising your claims.
  • The fee that the specialist charges is more than enough since they can ensure you of a maximised claim.

It’s true that accountants are great at what they do, however, they are not experts in this particular field. To give you an idea, it is just like having a car mechanic fix an aeroplane. Surely, they might have some idea of what they should look for but what they possess is just a rudimentary understanding.

In fact, a lot of accountants will refer R&D cases to specialist companies such as ours. We are proud to say that we work with a variety of accountants who trusts us in submitting R&D claims on behalf of their clients.