R&D TAX CREDITS
Overview
Every £100k spent on R&D, you can get a cash refund of £33k if loss making, or tax saving of £43k if profit making – R&D Tax Reliefs The great multi-billion pound tax giveaway! Research and Development (R&D) tax reliefs, or R&D tax credits as they are also referred, are government tax reliefs rewarding UK companies for investing in innovation and can have a valuable impact on small and large businesses alike. The government has set aside billions of pounds for claims over the coming years and the definition of qualifying companies is wider than you might expect – and definitely not the preserve of the scientists in white coats. Businesses spending money on developing new products, services or processes and even enhancing existing ones, can be eligible for a sizeable reduction in their Corporation Tax and / or a cash payment to reward their investment. The relief is equivalent to 33p for every £1 of qualifying expenditure. This means that the tax relief is 230% of the amount invested in R&D activities.
SEE HOW MUCH RELIEF YOU COULD RECEIVE USING OUR CALCULATOR FOR SMES
For R&D tax purposes, HMRC has quite a broad eligibility criteria. Contrary to many people’s beliefs, HMRC is sector agnostic when it comes to R&D tax reliefs. Ultimately if your company is taking a risk whilst attempting to ‘resolve scientific or technological uncertainties’ then there’s a chance this activity could qualify:
- Creating products, services or even new processes to support your business.
- Changing or modifying existing products, services or even new processes to support your business
So if you’re undertaking, or have recently undertaken a project which you’re not sure is scientifically or technologically possible or if you’re not sure how to achieve it in practice you could be ‘resolving uncertainties’ and thus qualify R&D tax reliefs. Within the definition of research and development, according to HMRC, R&D does not necessarily have to be successful to qualify. It’s worth noting that work completed on behalf of a client may also qualify subject to a number of checks. “For start ups and established businesses -Turn your R&D costs into R&D tax credits”
Frequently Asked Questions
What are R&D Tax credits?
A government backed tax incentive scheme whereby companies can receive benefit for expenditure on developing new products, services and processes.
What is R&D for TaX puroses?
The tax definition very different from the accounting definition and is much broader. The government define R&D for tax purposes as work carried out that seeks to achieve an advancement in science or technology where the chance of success is uncertain.
What type of activity qualifies?
As you would expect, highly technical projects qualify for R&D tax credits but due to the broad definition, qualifying projects can also be as simple as merging two IT systems or improving a production process. So it’s important to review all projects.
What benefit do I get – cash? Offset v tax?
SME’s will get an additional 130% tax deduction for qualifying expenditure, so for every £100 spent on R&D, you will get a £230 tax deduction. Where the company has unrelieved trading losses, they can surrender the enhanced R&D tax relief for a repayable credit of 14.5%. So this gives a £33 repayable credit for every £100 of qualifying spend.
What costs can be included in the claim?
Employee and subcontractor costs generally make up the majority of an R&D claim. Certain consumables and a portion of admin costs can also sometimes be included. It is important that staff time spent on projects is recorded accurately to increase the robustness of the claim
What are the time limits for making a claim?
Companies have up to two years after the year end to make a claim.
