Research and Development Tax Credits (R&D Tax Credits) are funding tools offered by the UK government to provide financial support for innovative businesses.
Every financial year, businesses bringing new products, processes, or services to market (or enhancing existing ones) can file R and D Tax Credits and reclaim up to 27% of money spent on qualifying R&D activities.*
Qualifying R&D activities – or areas of expenditure that R&D Tax Credits allow you to partially reclaim – are:
Externally Provided Workers (EPWs)
Payment to the subject of clinical trials
(From April 2023, qualifying expenditure for R&D tax relief will be expanded to also include money spent on pure mathematics and data/cloud computing!)
How much expenditure you can reclaim through R and D Tax Credits is dependent on the size of your business and its financial position.
Businesses that have less than 500 employees, less than €100M in turnover, and less than €86M in gross assets, qualify for the SME R&D Tax Credits scheme. If the company is loss-making, this scheme allows them to reclaim 27% of qualifying expenditure. If they’re profitable, they are entitled to claim 21.5% of qualifying expenditure.
Businesses that fall below these key size metrics must file under the RDEC scheme, which allows them to reclaim a fixed rate of 20%, irrespective of their financial position. This percentage is subject to corporation tax, which reduces it to around 15%.
To read about how R&D Tax Credits are calculated in more detail, check out our specialised article.
Here, we’re going to explain how and when R&D Tax Credits are paid to the claimant, and factors that can affect the pay-out process.
💸 Will my R & D claim return cash or a corporation tax deduction?
R and D Tax Credits are either paid out in cash, deposited directly into the claimant’s bank account, or as a corporation tax deduction.
Businesses that file under the SME R&D Tax Credits scheme receive their R & D claim benefit in cash - if they are loss-making. As mentioned earlier, loss-making businesses are entitled to reclaim the largest proportion of qualifying expenditure (27%). These two factors make R&D Tax Relief particularly advantageous for loss-making businesses!
For profitable businesses (regardless of whether they fall under the SME or RDEC R&D Tax Relief scheme) R and D Tax Credits will be paid out in the form of a corporation tax deduction off current or future tax liabilities.
Though this isn’t a direct transfer of cash, claimants quickly find their cashflow enriched by money saved on tax that can now be injected back into the business.
⏰ Once my R&D Tax Credit claim has been approved by HMRC, how long until I receive my benefit?
HMRC aims to pay out research and development tax credits within 28 days for the SME R&D Tax Relief scheme. Corporation Tax repayments after often paid out quicker because they can be issued through an automatic process that doesn’t rely on an HMRC inspector’s intervention.
Cash repayments typically take longer, as HMRC inspectors manually process them to ensure full compliance. Historically, R and D Tax Credits filed under the RDEC scheme take longer to pay be paid out than that of the SME scheme. This is because greater sums of money are dealt with, and HMRC sometimes raise the level of scrutiny.
Since mid-2020, however, HMRC have stated their aims to now process RDEC R&D claims within the same time frame as SME R&D claims.
Typically, we see clients receive their benefit – regardless of their R&D Tax Credits scheme - within 4-6 weeks.
There are some other factors that can affect how long it takes to receive your R & D Tax Credit claim benefit, which we’re going to discuss now...
1. Busy Periods
HMRC can receive a backlog of R & D claims at busy periods throughout the financial year, such as company year-ends in March, September and December. This can delay an R&D Tax Credit claim payments as a result of an increased workload for inspectors.
2. HMRC Enquiry
If your claim triggers follow-up queries or a formal enquiry from HMRC, then the payment will be delayed further. An HMRC enquiry can be a lengthy process ranging from around 3-6 months, depending on whether the claim was randomly selected or whether inspectors flagged the R & D claim due to suspicions of illegitimacy.
How long an enquiry takes to resolve also depends on how quickly and efficiently you can compile the evidence needed to justify your financial and technical reports.
By filing your R&D Tax Credits with a specialist that’s experienced in meeting HMRC’s complex regulation, you can minimise the chances of an enquiry.
With over 25 years of experience in successfully maximising R&D Tax Credit claims, this is something our experts do very well. Our confidence in withstanding scrutiny is reflected in our full HMRC enquiry support, at no extra cost.
Our clients can rest assured that if their R & D Tax Credit claim is flagged for enquiry, our experts will collate the evidence necessary to clear up any issues on their behalf. And regardless of how long resolution takes, this support is included in our fixed fee.
Recently, the payment of research and development tax credits was paused entirely by HMRC, whilst moderators investigated a surge in the number of potentially fraudulent claims.
At present, we’re pleased to be seeing payment being resumed and R&D Tax Relief being paid out.
However, the drastic move of freezing pay-outs will continue to have effects on the market and the speed at which claimants receive their R & D claim benefit.
If you want to learn more about HMRC’s crackdown on compliance within R&D Tax Relief, you can find more detail on our previous blog.
3. Specialist completion of the CT600 & CT600L
Using an R&D Tax Advisor that completes and submits the CT600 on the client’s behalf is a great way to streamline the process of filing your R & D claim and receive payment, faster.
Relying on your Accountant to make amendments to the CT600 and CT600L for the purpose of your R & D Tax Credit claim can result in mistakes and omission of necessary detail – which lead to further repayment delays.
At Claim Capital, our 25 years of experience in securing R&D Tax Credits for UK companies allows us to complete and submit R&D claims quickly and efficiently. In fact, we aim to complete our clients’ R&D Tax Credits within 3-5 working days.
Our R&D Tax Specialists provide an end-to-end service, taking care of every aspect of your R&D Tax Credit claim, including expert completion and submission of the CT600 and CT600L.
After an initial call outlining your business’ technical and financial information, and once our specialists receive sufficient data from your team, you can offload the entirety of your R & D claim and focus solely on your research and development project.
That covers the issue of how and when R&D Tax Credits are paid out to innovative companies!
As your business progresses in size and your financial position changes, you might find that the time it takes to receive your R&D Tax Credit claim fluctuates, and you’ll likely switch between receiving cash and tax benefits.
If you’d like further clarity on what your R & D Tax Credit claim payment will look like for your business, reach out to our team of R&D Tax Specialists.
Even if you’re not sure whether your business is eligible to claim R&D Tax Credits, we’d be happy to schedule a free claim consultation and see how we can help.
*These are the updated figures in line with the new legislation announced in the April 2023 Spring Budget.