How To Claim R&D Tax Relief As A Small Business

by Areande Tax Company Areande Tax Relief Company

Large corporations are usually no stranger to concerns such as corporation tax and research and development (R&D) but as a small business or SME, you may not be sure what this means for you. Since the scheme was introduced by the Government in 2000, R&D tax relief has been available for companies who lead by innovation, whether that be in software, the life sciences industry or food and drink.

Innovation at its finest

Innovation is defined by making changes to something (usually already established) by introducing new methods, ideas, or products. In a real world context, this looks like businesses (small or large) that set out to change their industry.

For example, the life sciences industry is one built on innovation as it looks after people’s health. Without new ideas, medicines, and products, this industry wouldn’t have been able to transform previously life-threatening conditions into ones that can now be managed.

The government introduced the R&D tax relief scheme as a way of rewarding and encouraging similar innovations to the ones that have advanced the world to where it is today. By offering a Corporation Tax (CT) tax relief, businesses may be able to reduce their tax bill or, in some cases, be eligible for a payable tax credit.

 

Research & Development relief 

When it comes to gaining tax relief for R&D purposes, a project must seek to achieve an advance in a field of science or technology, whether that’s an advance in capability or overall knowledge. So companies carrying out qualifying research and development (R&D) are able to claim a corporation tax deduction, but the level of relief will depend on which scheme the company uses.

Historically, smaller businesses have been less likely to claim. Now, year on year, more eligible SMEs are starting to claim R&D tax relief but they’re still a long way behind large corporations in terms of the amount claimed. Large businesses account for 43% of funding, even though they only represent 7% of all claimants, with large corporations claiming an average benefit of £600,977 compared to £64,562 that SMEs claim.

However, R&D tax credits don’t come from a fixed pot of money, and it makes sense that large businesses would have higher costs that they then look to claim back. What’s most important is ensuring that all eligible businesses are able to get the appropriate tax relief to keep innovation moving forwards.

Claiming R&D tax relief

The first step in working out what kind of scheme you may be eligible for is to work out what kind of business yours is. When defining an SME for R&D tax relief purposes, the government will take into account staff headcount (must be fewer than 500) and then either turnover (€100m) or balance sheet total (less than €86m). If your company has linked or partner companies then the data for each will need to be combined to calculate your R&D.

The next step is to work out whether or not your business qualifies. To qualify, your company must be carrying out research and development in the field of science or technology. To help you work out whether or not this applies, ask yourself the following questions:

Am I seeking an advance in a field of science or technology that advances the industry, rather than my company’s interests? Does my project involve a level of uncertainty that other competent professionals can’t easily resolve and where possible solutions aren’t common knowledge?

If the answer to these questions is yes then it’s likely you could be eligible for R&D tax relief or R&D tax credits. However, most small businesses aren’t confident in working this part out and usually seek help in doing so. Companies like Areande offer a seamless way to claim R&D tax relief and are particularly beneficial to small businesses who are new to claiming.

When you submit a claim, it’s important to provide as much detail as possible to demonstrate that you do, in fact, qualify. Firstly, you must show that you are actually working on a scientific or technical advance. This does not include projects that are just commercially innovative and you must detail what advance is being sought.

Next, you will need to detail what uncertainties were encountered. This must be an example of uncertainty in the field, not just within your own business. If another competent professional in your industry could solve the problem then it may not be considered ‘uncertainty’ (for the purpose of claiming).

You must also set out a timeline of your project and detail each stage of it. A project is defined by beginning as soon as the uncertainty arises, and is defined by ending as soon as it is resolved (or work towards a resolution ceases). A timeline is important because not all aspects of a project will qualify for R&D relief. While the uncertainty and the work towards resolving it qualifies, IP protection, industrial upscaling and commercial application are considered non-qualifying activities.

Typically, innovation tax relief claims are lengthy, as you must show that your project fits within the R&D definition set out by the government. But Areande have created a first-of-its-kind portal that helps to make the process as streamlined as possible. Their technology not only reduces the effort required to make a claim, but can also help you to claim back as much as possible.

For small businesses and SMEs who are seeking more information on R&D tax relief, try the handy Areande eligibility checker to get started: https://www.areande.com/calculator

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Created on Sep 17th 2020 00:28. Viewed 347 times.

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