The Main Benefits of Research and Development Tax Credits

by Areande Tax Company Areande Tax Relief Company

Research and Development (R&D) Tax credits are a fundamental consideration for any pioneering company. Companies can gain substantial financial rewards when they claim. This can be by reducing their Corporation Tax liability or even obtaining a cash injection.

In 2000 the UK government launched the approval of R&D Tax Credits relief. Many companies have already reaped the benefits but there are plenty of businesses out there who are still eligible to claim and they still haven’t. This means they are possibly missing out on thousands of pounds. This could be due to the fact they are unaware the scheme is suitable for them or potentially their research and development projects are not eligible. Some are simply worried about the intricacies of claiming and others just don’t know the scheme exists.

Areande are here to help if you would like to find out more about this relief, general information about whether this scheme is suitable for your business and how to claim. There are huge benefits and you will see a positive difference R&D Tax Credits can make to your corporation. Keeping this in mind, we’ve put together some of the main benefits in claiming R&D Tax Credits.

What is Research and Development?

R&D is work directed towards the innovation, introduction, and improvement of products and processes. It is a much broader topic than businesses think. A variety of sectors may be able to claim from manufacturing, technology to property & construction.

If you have a profitable SME you could acquire an enhanced deduction of 130%, the equivalent to tax relief of up to 46% of the qualifying expenditure basically reducing the net cost to £54 per £100 of spending.

The scheme is especially helpful for early stage and loss-making companies, as a payable tax credit can be recovered from HMRC equivalent to 33.35% of the qualifying expenditure (reducing the net cost to £66.65 per £100 of spending).

So, let’s take a deeper look at the main benefits for R&D Tax Credits:

Any sector can claim

A major benefit of the R&D Tax Credits scheme is the that any business, sector or industry is able to apply. This removes any myth that only scientific or technology companies meet the criteria. Fundamentally, so long as your business is based in the UK and registered to pay Corporation Tax then it’s likely to qualify.

The main point is that the research and development activities assumed have the goal of trying to resolve a particular technological or scientific improbability. This is irrespective of a company’s size.

There are two outlets to the scheme and depending on your companies’ size will depend on which you use.

How to claim if you are an SME:

· Must be a UK limited company

· Have been trading for over 12 months

· No more than 500 employees

· Have an annual turnover of less than €100 million or a balance sheet no more than €86 million

Companies which are bigger should apply for R&D Tax Credits under the Research and Development Expenditure Credit (RDEC) scheme. Under this scheme, businesses can claim R&D tax relief of up to 230% of eligible expenditure. Expenses comprise of materials, employee wages, certain sub-contracting costs and consumables. The great news is that you may still claim in spite of if the R&D project failed in its objectives, if technical and/or scientific investment was created.

Eight types of qualifying costs

A key part of the R&D Tax Credits application is being able to figure out which costs you can claim for and how you can make your calculations.

When it comes to making an R&D Tax Credit claim typically, there are eight sorts of qualifying costs:

· Direct staffing costs like employers NICs and staff wages

· R&D consumables used up directly in the R&D process

· Software

· Contributions to independent research

· Externally provided workers

· Subcontracted R&D

· Prototypes

· Clinical trial volunteers

There are of course certain exceptions within each category. Which is why we recommend you seek advice to avoid any mistakes.

No Minimum Claim for R&D Tax Credits

Luckily, there is no minimum requirement which businesses need to spend on qualifying R&D projects in order to claim R&D Tax Credits. This wasn’t always the case so companies may not be aware of the rule change.

Before April 2012, companies had to spend a minimum £10,000 on applicable R&D activities to be able to claim R&D Tax Credits. However, this no longer applies, R&D Tax Credit applications can be made even on small sums, great for companies with less funds.

Loss-making Companies May Apply

A lot of companies won’t claim R&D Tax Credits because they haven’t turned over a profit and therefore believe they won’t be eligible for the relief, this is incorrect. Even companies who have made a loss can receive R&D Tax Credits so long as they get their application approved by HMRC. Claims are not always straightforward if your company has suffered a loss. So, seeking some guidance might be necessary.

Final Thoughts

Areande is here to help answer any questions you may have, dispel any doubts and work with you to facilitate your R&D Tax Credit application to give you the best chance of a success and maximising your claim.