The UK government, through HMRC offers R&D funding through an R&D tax relief and tax credit scheme. This enables businesses to gain money off taxes based on funds spent on R&D purposes. The scheme is fairly generous and offers a wide range of companies an opportunity to pay lower taxes based on the research and development that they do. One problem with the scheme, however, is that not all businesses realise that they qualify for this R&D funding. This leads to them not claiming money that could help considerably in making their business more successful. Here we explain what businesses qualify for R&D funding of this nature.

 

There are two types of schemes for differently sized businesses that allow organisations to gain R&D funding in the form of tax relief or credits. There is an SME scheme and the RDEC scheme (the latter was formerly known as the “large company scheme”). To qualify for the SME scheme, the company needs to meet certain requirements in terms of size and income. Specifically, the company should have fewer than 500 employees, and it must have either an annual turnover that is less than €100 million, or a balance sheet that is under €86 million. Companies that do not fit these criteria can claim under the RDEC scheme, but this is significantly less generous (though still worth pursuing!).

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Companies often think that they have to be working in Silicon Valley or some other high tech sort of business to be claiming R&D tax relief, but that simply isn’t true. UK government figures released in 2016 suggest that those claiming tax relief come from a variety of different sectors. By far the largest number of claims are put in by manufacturing companies, information and communication companies, and professional, scientific and technical companies. However, claims have been submitted from a wide range of companies working in other sectors including in the real estate industry, in education, in construction, in agriculture and in the food industry. The important thing to remember is that R&D, under the HMRC classification is explained as follows:

 

“R&D for tax purposes takes place when a project seeks to achieve an advance in science or technology. The activities which directly contribute to achieving this advance in science or technology through the resolution of scientific or technological uncertainty are R&D.”

 

You could be creating new IT systems or functionality that is innovative, or you could be making new recipes for your company to develop new products. You might be developing new manufacturing processes to develop product more efficiently or working on virtual reality advances. All of these types of activities may be considered R&D by HMRC, and if you are not sure if you qualify it may be worth asking a specialist R&D Tax Relief Advisor for help. Ultimately, the diversity of companies that qualify for R&D tax relief is large, and it is definitely worthwhile considering if you are doing R&D to reduce the tax you are paying and increase innovation at your firm.