Research and Development Tax Credits Explained

It’s easy for business owners to overlook or dismiss Research and Development tax credits.

Many company owners wrongly assume you need to have on-site research labs and facilities and complete ground-breaking research to qualify for the credit. Some are put off by the (again, wrongful) belief that an application for R&D grants and tax credit will complicate their tax calculations.

But Research and Development grants and tax credits are readily available to a lot of businesses who don’t realise they even qualify.

FAQ

1. What exactly is a R&D tax credit?

It’s a way for a company to reduce their tax bill by claiming some of their expenses as having been involved in research and development projects.

R&D grants and tax credits were introduced as a means of encouraging businesses to invest time and money into this area, to encourage continual development and innovation.

2. Do you have to own a large company to qualify?

No. Small and medium-sized businesses can apply as well.

3. Does the business have to have been operational for a certain number of years?

No! Start-up businesses can certainly qualify as well.

4. What kinds of companies should investigate the R&D credit?

Companies involved in the development of technology should definitely investigate further. Software developers, software-as-a-service companies, biotechnology companies, and any company providing a cloud-based technology or services, for example.

A general rule of thumb is, if you have an engineer on staff, you’re probably incurring research and development expenses, and these may qualify you for the Research and Development tax credit.

As well as tech companies, companies conducting research and development within the area of science can qualify as well. Again, like ‘technology’, ‘science’ is also a fairly broad and far-reaching field, so if your company fits in any way into this area, it’s well worth checking out if you qualify.

5. How to Claim for Research and Development Tax Credits

Firstly, your company needs to assess the research and development it conducts throughout the year. There is certain criteria you have to meet to qualify for the credit and, obviously, proof that you have conducted research is essential.

If your business qualifies for the tax credit, you need to calculate your expenses in the R&D area. Expenses can include anything from materials, staffing costs, software, research facilities, but they have to be shown to having been incurred due to your company’s research and development activities.

6. What Should my Next Steps be?

If you think your company could qualify for a Research and Development grant or tax credit, you need to seek advice from a reputable company who can help assess your business and guide you through collating your evidence, the necessary paperwork, and calculating your R&D expenses. One such company is MSC, who have a wealth of experience supporting businesses an all areas of Research and Development.