The two biggest questions we receive when we ask, “Have you considered R&D Tax Relief?” is:
What’s R&D tax relief?
Is my business eligible for R&D tax relief?
An introduction to R&D
The R&D tax relief scheme was introduced in 2000 as a way to encourage scientific and technological innovation in the UK. For businesses working on R&D projects and activities submitting a claim can save your organisation time and money. HMRC states,
R&D tax relief works in 2 ways; it can either reduce your corporation tax liability, or in the event of a loss making company, by surrendering the R&D tax losses to HMRC for a refund.
Is my small or medium sized business eligible?
The unfortunate part is that a large number of organisations don’t realise that they are eligible to apply for R&D tax credits. This can be for several reasons but most commonly it’s because they either don’t know they can do so, or once they are caught up in the hustle and bustle of building a business and don't realise that they are in the midst of developing a product or service that is uncovering a new solution.
To qualify for R&D tax relief under the SME scheme, the organisation must meet the following criteria:
Have less the 500 employees; and either
Has an annual turnover under €100 million; or
Has a balance sheet under €86 million
If you’re engaged in the following industries then you could potentially benefit from R&D tax related claims:
What activities and costs can you claim under R&D tax credits?
It’s important to remember that not all activities and expenditures can be claimed, it may be easier for some businesses to identify their qualifying activities than others and this is where a tax professional with specialist R&D knowledge can help you decipher what activities and costs you can claim. From 1 April 2015, the relief an organisation can receive increased to 230% on their qualifying R&D costs.
Activities you can claim:
Costs you can claim:
The benefits of R&D tax credits:
R&D tax credits will add value you to your business, the initial cash benefit alone can help ease the pressure on working capital requirements. As discussed earlier there are two ways R&D tax relief works which means the benefits will differ slightly for differnet businesses:
For profitable SMEs, R&D tax relief is provided by way of an enhanced deduction from taxable profits at a rate of 130% of the qualifying R&D expenditure.
Loss making SMEs can surrender all or part of the loss for a 14.5% repayable tax credit from HMRC.
From April 2020, the maximum amount SME's can receive as a credit from HMRC will be limited to three times the total amount of PAYE/NI it has paid in that period, you can find more information on this and other important changes from the Budget 2018 by listening to our summary on Wellers Beyond the Numbers.
Claiming R&D tax relief can be done in one of three ways:
Filing a CT600
Payable tax credit
For many businesses the confusion lies in not knowing if what they are doing can be considered as an R&D qualifying activity. As professionals, Wellers can work with you to explore and understand your expenditure and help identify relevant work undertaken to evaluate if your business is eligible for a potential claim.
The content of this post is up to date and relevant as at 02/10/2018.
Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.