Although research and development (R&D) tax credits have been available to businesses since 2000, many SME companies are not aware that they could be eligible for this valuable tax credit, worth up to 33.35p in the £1.
What are R&D tax credits?
R&D tax credits are a generous tax relief available to companies. The relief operates either by reducing the claimant company’s corporation tax liability or, in some circumstances can result in a cash payment from HMRC. The aim of this relief is to assist companies to be innovative and essentially provides a form of funding to companies who are attempting to advance scientifically or technologically.
Is my business eligible for R&D tax credit?
There are a lot of misconceptions within businesses that this tax relief is only available to high tech businesses and ground-breaking scientific research. This is simply not the case. Companies across various sectors have and continue to make R&D tax claims. If your company is developing a new product, process or system or improving upon an existing product, process or system and it is not widely known how to achieve the development then it would indicate that R&D tax credits would be available.
The rate of relief is dependent on the size of the company. The RDEC regime for large companies is not as generous as for small and medium sized companies, “the SME scheme”. In some cases, the RDEC regime can apply to SMEs where the company cannot claim under the SME scheme.
*The payable tax credit is calculated at 14.5% (11% on expenditure incurred before 1 April 2014) of the lower of the enhanced R&D spend or any unrelieved trading loss.
For a company to qualify for the SME scheme it must have fewer than 500 employees, and either:
an annual turnover of less than €100m, or
a balance sheet total of less than €86m.
Large companies are simply those that fail the above tests.
Where the claimant company is a member of a group the limits are tested against the group as a whole, not just the claimant company
What type of activity qualifies for R&D tax credits?
Examples of areas where successful claims have been made include software development, engineering design, product development, new construction techniques, bio-energy, cleantech, agri-food and life and health sciences.
What costs qualify for R&D tax credits?
In terms of the costs that qualify for R&D, the main cost will be a proportion of staff member’s salary including national insurance contributions that relates to R&D. Other costs that can be claimed for include third party contractor costs, materials used for prototypes and software used for R&D purposes.
What do I do next?
So that the R&D tax credit claim is maximised and that all the qualifying criteria are met use an expert in R&D claims which will help to reassure HMRC that the claim has been dealt with appropriately. This is where we can assist and provide guidance. We are happy to have a no obligation conversation to assess if you qualify for R&D tax relief.
For advice and guidance on R&D tax relief and if it is applicable to your business, please contact Phil Hartley to the right of this page.