The Qualification Process of R&D Tax Credits

The Qualification Process of R&D Tax Credits

The Basics

R&D tax credit started as a temporary government incentive to empower innovative companies to counterbalance their tax liability. Initially, the credit was renewed periodically and only a few taxpayers were able to access it. The PATH Act made the credit a permanent part of the tax code in 2015. 

Qualification criteria for the R&D Tax Credit 

The R&D tax credit benefits a variety of industries. Nevertheless, there are some eligibility criteria that apply. Many companies conduct activities that qualify without even realising it. 

The eligibility criteria can be categorised into company-related and activity-related:

(I) Company-related criteria

For a company to qualify, it must: 

  •       Aim to improve an existing system (or develop a new one),
  •       Hire research experts and/or scientists,
  •       Manufacture software or prototypes. 

(II) Activity-related criteria

The activities conducted by the company in question must meet the eligibility criteria as well, which are given by the four-part test:

  1. Qualified component
  2. Technological nature
  3. Elimination of an uncertainty
  4. Process of Experimentation

Common Questions about the R&D Credit

1. How does the R&D tax credit benefit startups?

Many companies believe that credit does not benefit small or startup companies. However, it offers various policies to benefit startups and SMEs as well. 

2. Does the R&D tax credit program have different schemes for large and small organizations?

The R&D tax credit has different schemes for large organizations and small companies. The scheme for a large organization is RDEC (Research and Development Expenditure Credit) and for SMEs for small or medium-sized companies. 

3. Can a company get the credit even if the research fails?

Yes, a company can file a claim for a failed yet qualified activity and get refunds. 

4. What does “QRE” stands for according to the R&D documentation?

According to the R&D credit, QRE mean Qualified Research Expenses. It means all the costs incurred in completing a qualified activity. 

Bourkehood Offers: More Free Resources, Money in Your Pocket, and Quickest Money Ever

Working with Bourkehood brings you a handful of benefits, and we guarantee that you will not regret your hire. 

Unlike other tax companies, Bourkehood offers free workforce resources. Hiring our teams gets you an extra pair of expert hands. Moreover, we help you prepare your claim in a reasonable budget, only consuming 240K$ per year. Furthermore, our team values your time. Therefore, providing efficient services to prepare your claim. With our experts, it will take less than an hour to get your claim standing.

The Qualification Flow

Availing the R&D credit is based upon understanding its qualification flow. If you know how your activities align with the criteria of the credit. Preparing a claim becomes swift. 

Evaluating the eligibility of your company: 

Bourkehood firsts evaluate the eligibility of your company. Whether it is innovating a system or improving an existing one. Since the significance of the innovation doesn’t matter according to the R&D documentation, even the smallest contribution marks the organization eligible.

Qualified Expenses: 

Once we are sure that your company qualifies. We shift our attention towards the expenses. According to Section 41 of the R&D documentation, we analyze your wages and research expenses. 

1)     The credit refunds the wages of the employees associated with the qualifying activities. However, the only limitation is that the company must employ US faculty to avail of the credit for refunding wages. 

2)     The contractual expenses used for providing the required materials and equipment also qualify. Moreover, the credit also refunds the expenses incurred in buying technology and cloud infrastructures.

Gross Revenue: 

The startup companies may avail of a total amount of 25,000 dollars per year to offset their taxes for five years. However, to avail of this policy of the R&D tax credit, the companies must have annual gross revenue of fewer than 5 million dollars. We will sum up the costs of your revenue, interests, and capital gains to calculate the gross revenue as per R&D requirements. 

Prior Revenue: 

Lastly, we evaluate the prior revenue of your company. As the credit states, if a company has no revenue receipts dating back to more than five years, it is eligible. Small and startup companies may use the refunds to counter their FICA proportion of the payroll taxes.

Your Industry Probably Covered For R&d Tax Credit Qualifications

The credit doesn’t deem an organization worthy based on its industrial sector. But instead, it is only interested in the qualified activities it performs. Although, there is no definite list of industries given by the R&D credit. Yet we think that some sectors have room for innovation always. And, we have prepared an all-rounder list which probably has your industry covered as well.  

  •       Aerospace
  •       Defense
  •       Apparel
  •       Architecture
  •       Automotive 
  •       Biotech
  •       Breweries
  •       Chemical
  •       Consumer
  •       Cosmetics
  •       Electronics
  •       Engineering
  •       Fintech
  •       Food and Bev 
  •       Hardware Tech
  •       Manufacturing
  •       Medical 
  •       Pharma
  •       Software
  •       Telecom
  •       Vineyards 

Next Steps with Bourkehood:

Now you know everything necessary to avail the R&D credit. The next thing you need is expert advice to get going with your claim. We will give you a quick overview of what we will do before assisting you in claiming the credit.

1) First, we’ll assess if your company qualifies for the R&D credit. It may include verification of the location of your company and the scheme etc. 

2) The experts will see how the activities justify the four-part test and other concerned criteria.

3) We prepare projects for your qualifying activities: breakdown and other plans to strengthen your claim for the credit. 

4) Once we are done with the activities, we will move toward the accounts. Thus, link your payroll and accounting software to keep financial records saved. 

5) Since R&D doesn’t refund all the incurred expenses, Bourkehood experts will sift the qualifying ones to add to the claim documents.

6) We will also require some additional insights to have a stand-in case the authorities opt for any further justifications. 

7) Once all the required information is collected, we will set to prepare your claim documents.

8) Bourkehood will prepare your claim efficiently within the given deadline, and you can easily fill it with your company’s annual tax return.

Claiming the Credit

Claiming the R&D credit isn’t that hard when you have an authentic claim. A good claim contains a breakdown of all the incurred costs and their fulfillment of qualification criteria. This gets even easier when you are working with the experts at Bourkehood.

A Word before the Finale 

The R&D credit started out as a temporary initiative to reward innovative companies. However, it later earned a permanent position in the tax code. As the years passed, various companies came forward to help organizations avail themselves of the credit. Bourkehood is a company comprising tax and accounting professionals to help you gain maximum from the credit.


The Qualification Process and Flow of R&D Tax Credit