R&D TAX CREDITS IS YOUR BUSINESS ELIGIBLE?
Research & development tax credits are perhaps one of the most valuable tax breaks available to SMEs & large businesses. Our experienced team can help you identify qualifying projects and relevant expenditure, then make the claim application with you to give you the best chance of success.
What are R&D Tax credits?
Research and development (R&D) tax credits are a government tax relief that rewards UK companies for investing in innovative projects in science & technology.
Companies which spend money developing new products, processes or services looking for advancement in the field with an uncertain outcome, or enhancing existing ones, are eligible for a cash payment and/or corporation tax reduction.
R&D tax credit rates can provide the equivalent of up to 33p for every £1 of qualifying expenditure. They can also be used as an alternative to innovation grants for research and development funding.
How R&D tax credits work
If the company is eligible, R&D tax relief claims can be made for up to the last two completed accounting periods. The relief is calculated based on the company’s total R&D spend. Expenditure is identified and enhanced by the relevant rate to produce your ‘enhanced expenditure’. When this figure is deducted from the company’s taxable profits, or added to any loss, it can result in a corporation tax reduction if the company is profitable, a cash credit if it is loss-making, or a combination of the two.
Which projects count as R&D?
Work that qualifies for R&D relief must be part of a specific project related to the current trade or one that you intend to start up based on the results of the R&D.
To obtain R&D relief you need to explain how your project addressed four key areas:
How the project looked for an advance in science and technology:
Your project must aim to create an advance in the overall field, not just for your business. This means an advance can’t just be an existing technology that has been used for the first time in your sector.
The process, product or service can still be an advance if it’s been developed by another company but isn’t publicly known or available.
How the project had to overcome uncertainty
You should be researching or developing something that isn’t known to be scientifically or technology feasible when you make or discover it.
This means that your company or experts in the field can’t already know about the advance or the way you achieved it.
How the project tried to overcome this uncertainty
You should show that the R&D needed research, testing and analysis to develop it.
You need to be able to explain the work you did to overcome the uncertainty. This can be a simple description of the successes and failures you had during the project.
How the challenge couldn’t be easily worked out by a professional in the field
You should explain why a professional couldn’t easily work out your advance. You can do this by showing that other attempts to find a solution had failed.
You can also show that the people working on your project are professionals in that field and get them to explain the uncertainties involved.
Types of R&D relief:
There are different types of R&D relief depending on the size of your company and whether the project has been subcontracted to you or not.
Small and medium sized enterprises (SME) R&D relief
You can claim SME R&D relief if you’re a company with:
- fewer than 500 staff
- a turnover of less than €100m or a balance sheet total under €86m
You may need to include linked companies and partnerships when you work out if you’re a SME.
SME R&D relief allows companies to:
- deduct an extra 130% of their qualifying costs from their taxable profit, as well as the normal 100% deduction, to make a total 230% deduction
- claim a tax credit if the company is loss making, worth up to 14.5% of the surrenderable loss
Large companies (R&D Expenditure Credit)
This replaces the relief previously available under the large company scheme.
Large companies can claim a Research and Development Expenditure Credit (RDEC) for working on R&D projects.
It can also be claimed by SMEs and large companies who’ve been subcontracted to do R&D work by a large company.
The RDEC is a tax credit for 11% of your qualifying R&D expenditure.
If you believe that your business is eligible for R&D tax credits please get in touch with our Tax Partner Robin Stevenson to discuss your position and whether we can help your business claim what you deserve.
Robin Stevenson - Tax Partner
Tel: 01825 763 366
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