Is there a minimum R&D spend required to make an R&D claim?

20th Sep 2019
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Since they were unveiled in the year 2000, R&D Tax Credits have been largely considered a universal success. Despite several government updates as well as the 2008 financial crisis, R&D Tax Credits are still one of the biggest government success stories in the business world today.

The R&D Tax Credit benefit for companies can be very substantial, so it’s vital that the application process is accurately carried out. As R&D Tax Credit professionals we can work with you to advise your client on the best way forward, so they can maximise their claim effectively.

What are R&D Tax Credits exactly?

Essentially, R&D Tax Credits allow UK companies that engage in research and development to claim financial help from the government. This is in the form of a credit, which can either be offset against a company’s Corporation Tax liability or be received as a lump sum.

The idea behind the scheme is that it encourages companies to grow and innovate. Not only is this beneficial for the companies themselves but also for the wider economy through jobs growth.

What kind of costs will qualify for R&D Tax Credits?

There are several types of qualifying expenditure that come under the umbrella of research and development for R&D Tax Credit purposes. These are:

  • Staff costs, such as wages, reimbursed expenses, pension contributions, employer’s NIC
  • Agency workers, freelancers and subcontractors costs
  • Some types of software
  • Materials and consumables including power, light and heat that are transformed or used up by the R&D activities
  • Payments to volunteers that have taken part in clinical trials

Regarding staff payments, what direct and indirect costs are eligible?

Staffing costs that qualify for R&D tax relief come under two categories:

  • Activities that have directly contributed to the technological or scientific uncertainty being solved
  • Qualifying indirect activities

With this in mind, the extent to which an employee is actively and directly engaged in R&D will be based on the duties they have undertaken. Therefore an employee’s time should be allocated in such a way as to reflect the amount of time they have spent working on eligible R&D activities across the claim period.

When looking to apportion an employee’s time, applicants should ask themselves the following:

  • What eligible R&D projects did the employee carry out during the year?
  • For each of these projects, what eligible R&D work specifically did the employee take on?
  • What percentage of the employee’s total time did the R&D work take up?

How do I know if my client’s company qualifies for R&D Tax Credits?

In order to make an R&D Tax Credit claim, businesses must:

  • Be a UK company which is liable for Corporation Tax
  • Be a going concern
  • Have undertaken eligible R&D activities, and spent money on those activities
  • Not be in liquidation or administration

There are certain other criteria, for example whether the company has taken on any subcontracting or received certain grants, which will affect how an R&D claim is made. This is why it’s worth getting in touch with us at Myriad Associates so that we can discuss your client’s unique circumstances with you and offer guidance where necessary.

As R&D Tax Credit specialists we deal only in this financial area, so we’re not interested in ushering clients away from you. Instead, we will work alongside you to make sure the R&D tax advice your client receives specifically is accurate and tailor-made to their situation. This leaves you free to deal with all their other tax-related requirements as normal.

What branch of the R&D Tax Credit scheme is right for my client?

This depends heavily on whether your client’s company is an SME or a larger company.

SMEs apply under the SME scheme, providing the company has less than 500 staff. It must also have under €100 million in turnover or €86 million in gross assets. This is the category which most companies come under, including start-ups.

If your client’s company is larger and more established, it will need to apply under what’s called the Research and Development Expenditure Credit (RDEC) scheme. This applies for companies of over 500 employees with more than €100 million in turnover or €86 million in gross assets.

So is there a minimum amount that must be spent on R&D to qualify for R&D Tax Credits?

No, there is no minimum amount which companies must spend on eligible research and development activities in order to claim R&D Tax Credits. However, historically this was not always the case.

Before the 1st April 2012, companies must have incurred at least £10,000 of relevant expenditure on R&D activities in order to make an R&D Tax Credit claim. Since then however, this has no longer applied, meaning that R&D Tax Credits can be claimed even for the smallest amounts.

What are the rates for R&D Tax Credits?

SMEs can claim up to 33 pence for every £1 spent on eligible R&D projects. In 2016-17, the average claim made by UK SMEs was nearly £54,000.

Larger companies that come under the RDEC scheme are able to claim up to 10 pence for every £1 spent on eligible R&D ventures. The average claim in 2016-17 amongst larger UK companies was just under £280,000.

How can Tax Cloud UK help?

You’re busy getting on with your day job - and your clients are busy too. Working through the figures with regard to R&D Tax Credit can be time consuming, and calculations need to be fast.

With different sections for both accountants and businesses, simply sign up to Tax Cloud and we can handle your clients R&D claim from start to finish whilst you claim a referral fee. This allows you to save time, save hassle - and help your clients achieve the very best outcome.

If you need any further advice on R&D Tax Credit claims, our expert team will be pleased to help. Drop us a line on 0207 118 6045 or use our contact form and we’ll get back to you.