Kreston Reeves helped us successfully claim R&D tax relief. The whole team were amazing, they guided us throughout the process and produced an R&D report for HMRC which resulted in... More a successful claim for our business. Many thanks to Kreston Reeves for all your help and support. Varun Bhatt, co-CEO, E-Careers Limited
Innovation incentives and R&D Tax Credits
The UK is recognised as a world-leading force in innovation, scientific research, and technological development.
In a post Brexit (and now post COVID-19) environment the UK Government recognises that science and technology will play a vital role in the UK remaining a competitive force. The Chancellor outlined in the 2022 Autumn Statement how innovation would be crucial to unlocking economic growth, announcing that the government will be protecting £20 billion in research and development investment in 2024 to 2025.
One key element of this support is the continuation of significant tax incentives intended to provide financial assistance to companies seeking to invest in innovation. These tax incentives are provided through the means of tax credits which can provide a vital boost to cash flow and help claimant companies further fund their research and development activities.
What is often overlooked is that R&D tax credits may be claimed by a broad spectrum of companies and not those immediately in science or technology sectors. For example, we have assisted clients from sectors including manufacturing, engineering, construction, IT, agriculture, breweries, retail and even scrap metal merchants – as well as clients operating in ‘white coat’ bio and ‘bleeding edge’ computer science sectors.
Where you plan to claim Research and Development (R&D) tax relief or expenditure credit for your innovative projects, you need to be aware of the changes to the R&D notification requirements that will apply for accounting periods commencing on or after 1 April 2023. You will have to submit a claim notification form to HMRC before you can make your first claim or if your last claim was more than three years ago. You will also have to submit an additional information form to support your claim from 8 August 2023. These changes are intended to prevent abuse of the R&D tax relief scheme and ensure that only genuine claims are made.
There are two key incentive schemes available. Both have seen significant changes recently with further developments on the horizon. These are:
The SME scheme
Broadly this is available to small and medium-sized companies. Where claimants undertake qualifying activities, they may claim an enhanced deduction of 186% of their qualifying expenditure on or after 1 April 2023 (previously 230%).
The enhanced deduction can reduce taxable profits or even create and enhance tax losses. For profitable companies, this can mean that the SME tax credits provide an effective cash benefit of 21.5p for every £1 of qualifying expenditure (86% x 25%), assuming the company pays Corporation Tax at the main rate.
For loss-making companies, the tax R&D loss may be surrendered in exchange for a repayable tax credit worth 10%. This can be worth up to 18.6p for every £1 of qualifying expenditure (186% x 10%). However, for ‘R&D intensive’ companies, which broadly spend 40% of their total expenditure on R&D, losses can be exchanged at a rate of 14.5%. This can be worth 26.97p for every £1 of qualifying expenditure (186% x 14.5%).
R&D Expenditure Credits (RDEC)
A company may claim RDEC where it does not qualify as an SME. In certain circumstances, SMEs may be required to claim under RDEC where a project does not meet certain SME scheme criteria.
Under RDEC, a company can claim a tax credit of 20% of qualifying expenditure incurred on or after 1 April 2023 (previously 13%). This is accounted for as an above the line credit and therefore increases a company’s profit before tax. For profitable companies, this can mean that RDEC can provide an effective cash benefit of 15p for every £1 of qualifying expenditure (20% x (100% – 25%)).
The credit can be offset against the corporation tax liability of the company, offset against other liabilities, or potentially repaid to the claimant.
How we can help
Our specialist team offer an end-to-end R&D service. This will enable you to access the R&D relief that you are entitled to as quickly and easily as possible.
We will work with you to identify qualifying projects and expenditure on which a robust R&D tax credit claim may be made.
Our bespoke approach is designed to provide HMRC with the relevant information they require so they can promptly approve and expedite your tax credit claim.
As a leading firm of accountants, all of our R&D Tax credit service work is undertaken in accordance with the Professional Conduct in Relation to Taxation (PCRT).
Our areas where our business tax advisory team can provide support and assistance
We are also happy to talk to you about and advise on the following key areas, amongst others, where tax represents an important element of the commercial decision-making process:
We would like to help you make confident decisions and support you in working towards a brighter future. We look forward to working with you.
Want to learn more about how we can help?
Contact us to arrange to speak with one of our specialists in London, Kent and Sussex.
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