Guest Blog by Andrew Smythe and Julie Stewart of Amplifi Solutions.
If you have any further questions about this, it would be worth discussing with your accountant or directly with Andrew to see if you could benefit from this.
What is R&D?
When a business identifies a product gap in the market or a problem with an internal process they may start to investigate different ways to rectify it, such as trying to create a new product or fundamentally change a process, both these actions could end up extending the knowledge within a certain field. This is R&D.
R&D Tax Credits Explained
Initially introduced in 2000 by the Government to encourage and reward R&D within limited companies or PLCs, R&D tax credits offer an additional tax reduction of up to 24.7p (or up to 33p if you are surrendering a loss) for every qualifying pound spent on R&D.
SME Scheme
-Less than 500 employees
-Turnover of less than €100m
-Enhanced reduction of 130% on all qualifying R&D expenditure or an additional tax deduction of 24.7p (up to 33p if you are surrendering a loss) for every qualifying pound spent on R&D.
RDEC Scheme
Over 500 employees
Turnover of > €100m or Net Assets > €86m
Have notified grants
Enhanced reduction of 13% on all qualifying R&D expenditure or an additional tax deduction of 9.7p (11p if you are surrendering a loss) for every qualifying pound spent on R&D.
Qualifying Activity
HMRC classifies R&D as a project that seeks to ‘advance science or technology’ and tries to overcome a ‘level of uncertainty’.
Simply put, if a business is taking a risk in trying to develop something that will advance the scientific or technological knowledge in their field, and they have undergone a process of trial and error, then they could qualify. This includes:
New products, services and processes
Changes to products, services and processes
Project failures or successes
Qualifying R&D Costs
R&D tax credits cover R&D costs from the start until the end of a project’s “uncertainty” or the trial and error phase.
Allowable costs include:
People: Salaries, wages, employers, NICs & pension contributions
Subcontractors: using third parties to help solve the technological uncertainty
Consumables: raw materials consumed in the prototyping and testing process (eg chemicals, flour, electronic components, etc.)
Utilities: Heating, lighting and power
Software: Software licences used to deliver your R&D project (eg AutoCAD; SolidWorks)
EXAMPLES OF R&D
When you are testing or developing a new or modifying an existing product or process, your projects could qualify for R&D tax credit support. Below are some qualifying sector activity.
Manufacturing
- Creating new products or product ranges
- Modifying or updating aspects or features of an existing product, such as its performance, size, finish or eco-friendliness.
- Developing new manufacturing equipment, tools, jigs or moulds
- Updating the manufacturing infrastructure by the customised adoption of technology such as automations or robotics
- Improving manufacturing processes such as waste, heating, safety and quality assurance
Engineering
- Creating engineering drawings and models, potentially with the use of Computer Aided Design (CAD) and Building Information Modelling (BIM) software
- Designing or adapting engineering systems such as refrigeration, HVAC (heating, ventilating and air-conditioning), waste, plumbing and fire protection
- Developing construction or installation techniques, equipment or methods
- Modifying or designing new mechanical fittings, routings and equipment sizing
Software and Hardware
- Designing new workflow, marketing, finance, healthcare etc. solutions and platforms
- Developing data, security and encryption software
- Creating unique algorithms or coding designed to integrate two or more platforms
- Bespoke adaptation of off-the-shelf solutions
- Creating new computer components or SMART devices