Research has shown that there are millions of pounds of Research and Development tax relief overlooked by SME’s.
What is R&D tax relief?
It is only available to companies and is a corporation tax relief that may reduce your company’s tax bill or generate a refund via R&D tax credits. It was introduced in an effort to boost the technology industry and reward innovative corporations.
Is my company eligible?
According to HMRC, R&D for tax purposes is a project that “seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty – and not simply an advance in its own state of knowledge or capability.”
In basic terms if you are working on a project that seeks to achieve an advance in science or technology then you can apply.
As with many tax relief schemes there is a certain criteria that outlines what is classed as R&D revenue expenditure for a business, including:
- Cost of employing staff directly
- Paying an agency or other staff provider for workers directly engaged in R&D activity
- Consumable and transformable materials used directly in R&D work
- Power, water, fuel and computer software used in carrying out R&D
It is possible to look at the last two accounting periods for a company. This is because an amended corporation tax return can be submitted to HMRC within one year of the original filing deadline. Such a claim could generate an immediate tax refund.
How much is the relief?
For SME’s the tax relief on allowable R&D costs is 230%. This means that for every £100 of qualifying costs, your company will obtain tax relief as if it had spent £230, thereby reducing your Corporation Tax by a total of £46.
For large companies the tax relief on allowable R&D costs is 130%. So for every £100 of qualifying costs your company could have the income, on which Corporation Tax is paid, reduced by an extra £30 on top of the £100 spent.
How do R&D tax credits work?
If the company is loss making, or it does so as a result of the R&D deduction, the company may surrender the loss and receive a repayable tax credit of 14.5% of the loss surrendered, subject to some restrictions. Effectively this gives a potential refund in cash of £33.35 for every £100 spent on qualifying activities.
What do I need to do to apply?
If you think you are eligible for Research and Development tax relief then it is essential that you seek professional advice to ensure your claim is submitted correctly.
Contact Walker Begley today to speak to a member of the team to ensure you receive what you are entitled to.
Source – https://www.gov.uk/guidance/corporation-tax-research-and-development-rd-relief
