Innovation Kirby & Haslam

Debunking R&D Tax Credit Myths

R&D tax credits are a fantastic opportunity that rewards UK businesses for their innovation, but with so much misinformation floating around online, this government-led scheme can seem confusing and therefore is often under-utilised. With over 20 years of experience, Kirby and Haslam have the expertise to separate facts from fiction. We have broken down the most common R&D Tax Credit myths to help you feel confident in your claim.

Myth 1: R&D Tax Credits are only for innovation within the scientific sector.

Whilst basic scientific research is a clear example of an eligible project, this government scheme is focused on encouraging applied science across all sectors. Applied science means addressing an issue within a business by using known scientific or technical principles. For your business, this could mean researching how you could streamline your business operations or developing and testing a new product.

Myth 2: You can only claim on completed projects.

This myth is entirely false. No matter the stage of completion, your R&D project may still be submitted for an R&D Tax Credit claim. Whether you’ve had to put your project on hold or completely abort it, your existing R&D efforts can still be rewarded.

Myth 3: You can only claim if your project is successful.

This government scheme was introduced with the sole purpose of encouraging innovation, whether it is successful or not. HMRC understands that there is always some risk in conducting innovative research, and they do not penalise businesses for this. So even if your project didn’t produce the results you were looking for, you can still claim R&D Tax Credits for your efforts.

Myth 4: You must create a completely new product or process to be eligible.

This is a common misconception that stems from outdated information. Previously, a business would have to discover or create a completely new product or process to be eligible for R&D Tax Credits. However, the government came to understand that this was an unreasonable expectation. HMRC now states, “Your project may research or develop a new process, product or service or improve on an existing one.” It is those last five words that really matter here. Improving upon a pre-existing process, product, or service is something many UK businesses are already doing and could be eligible to claim R&D Tax Credits for.

Myth 5: You can only claim for the current financial year.

When claiming R&D Tax Credits for the first time, you can claim for your last two financial periods. This means that if your current financial year is coming to an end soon, it’s best to claim before potentially losing out on a year’s worth of a claim. With this in mind, make sure to track all of the R&D expenses your business incurs and claim before the two-year deadline passes.

Kirby & Haslam R&D Tax Changes April 2023

Research & Development Tax Credit Changes from April 2023 

The UK’s Research & Development (R&D) Tax Credit Scheme is a government incentive, introduced in 2000, aimed to encourage businesses to invest in innovation projects. Providing tax relief for companies who undertake R&D, the scheme helps offset costs associated with research investment.  

The government continuously aim to improve the scheme, for example, in 2018 changes were made to the application process making it easier for small and medium-sized enterprises (SMEs) to claim for R&D Tax Credits. Such changes included reducing administration and providing more guidance on what qualifies as R&D. Another example of how the scheme continuously improves is 2020, in response to the Covid-19 pandemic, rates increased from 12% to 15% of eligible R&D expenditure, providing additional support for companies during challenging times.  

Further changes are to be introduced to the scheme as of 1st April 2023. Effecting SMEs and larger organisations, the changes to R&D Tax Credits reflect a shift in strategy from HRMC in UK innovation investment. In order to improve compliance and the smooth operation of the scheme, the rates are to be rebalanced and companies claiming under the R&D SME scheme will receive a lower rate of tax relief, whilst those claiming Research & Development Expenditure Credit (RDEC) will secure more generous rates.  

How Does this Effect SMEs? 

In real terms this means that, as of 1st April 2023, the additional deduction for SMEs will decrease from 130% to 86%, with the credit rate reducing from 14.5% to 10%. For example, if your R&D spend was £100, as of April, the Tax Credits available would decrease from £24.70 to £21.50. 

How Does this Effect my RDEC Claim? 

In a change of direction form how the scheme will reduce tax relief for SMEs, those claiming RDEC can expect to see an increase of Expenditure Credit, from 13% to 20%. So, once more, if your RDEC spend was £100, your Tax Credit would increase from £10.53, to £15.00. 

What Next? 

Although the reductions in R&D Tax Credits may make SMEs think twice about if a claim would be worthwhile, we would like to assure you it absolutely is! HMRC is still dedicated to improving Research & Development in SMEs, and even the reduced rate can provide vital support for your innovation projects. It is also worth bearing in mind that these changes will only affect monies spent for accounting periods on or after 1st April 2023, this means you can still take advantage of the more generous rates until then.  

For more information on how R&D Tax Credits, or RDEC, could benefit your business, contact us today so we can assess your innovation eligibility.  

Kirby & Haslam Research & Development

Research & Development in the United Kingdom

Research and development (R&D) plays a vital role in the United Kingdom’s economy, helping to drive innovation, increase productivity and competitiveness whilst also supporting growth. The UK has a long-standing tradition of scientific and technological excellence and is home to many world-leading universities and research institutions. 

Recognising the importance of R&D, the government launched the scheme in 2000 to encourage companies to invest in innovation. In recent years, the UK has established itself as a hub for tech start-ups, and the government’s initiatives have helped create a supportive ecosystem for such businesses, providing access to funding, mentorship and further resources to help growth within the UK economy. 

According to data from the Organisation for Economic Cooperation and Development (OECD), the UK ranks third in the world in terms of R&D investment as a percentage of GDP. These investments are helping to drive innovation and growth, attracting international talent and companies to the UK. 

Research & Development raises business productivity, creates high-value jobs and can solve national challenges. Innovation is not only key to rejuvenating existing industries, but also for building strong foundations for new ones. Whether in terms of new products or services, improved business processes, or new communication systems, these innovative projects can result in greater profits whilst also reducing expenditure.  

The Future of R&D in the UK 

The United Kingdom’s world-class universities and research establishments are key to our ecosystem, providing a pipeline of talent, knowledge and expertise, supporting the country’s innovative institutions and businesses, driving collaboration and the commercialisation of new technologies.  

The UK’s strong tradition of scientific and technological excellence, combined with supportive government policies and private sector investment, places us at the forefront of innovation projects, and Research & Development plays a crucial role in the economy, resulting in the country being well positioned to continue to drive R&D innovation in the future.  

Our team of specialist R&D experts are happy to answer any questions you may have about R&D Tax Credits or RDEC, contact us today for more information.  

The next step

Our team of specialist R&D experts are happy to answer any questions you may have about R&D Tax Credits or RDEC, contact us today for more information.