R&D Tax Relief is the term used to describe when companies are awarded R&D Tax Credits. “R&D” stands for “Research & Development” in R&D Tax Credits. These particular tax credits are special in the sense that they are designed to reward innovation and fuel growth. For businesses that invest in developing their products and services, these tax credits can be incredibly valuable in enabling companies to continue researching and advancing their products. In particular, they are designed to make life easier for smaller companies carrying out research and development.
If you are eligible for SME R&D tax relief, these tax credits will allow your company to:
Deduct an extra 130% of your qualifying costs from your yearly profit, as well as the normal 100% deduction, to make a total 230% deduction
Claim a tax credit if the company is loss making, worth up to 14.5% of the surrenderable loss
For staff working directly on the R&D project, you can claim a proportion of their:
Class 1 NI contributions
Pension fund contributions
For SMEs, the R&D tax relief also enables you to reduce the amount of corporation tax you pay on profits.
Am I eligible for R&D Tax Credits?
If you’re a small or medium-sized business, you may be eligible for SME R&D tax relief. You need to fit the following criteria:
You are an SME with less than 500 staff
You have a turnover of less than €100m or a balance sheet total under €86m
Your company also needs to be classed as working on innovative projects in your sector, and your company needs to be looking to research or develop an advance in your field. To be considered for R&D Tax Credits, you need to be able to explain how your project:
Looked for an advance in science and technology
Had to overcome uncertainty
Tried to overcome this uncertainty
Couldn’t be easily worked out by a professional in the field
Keep in mind that R&D Tax Relief is not just for businesses carrying out “white coat” scientific research – businesses within a variety of sectors have also been shown to be eligible for these tax credits. Examples of sectors in which R&D Tax Relief can qualify include:
Life and health sciences
If you are a larger company, instead of R&D Tax Relief you will have to apply for Research & Development Expenditure Credit (RDEC) which gives Corporation Tax relief to companies that carry out research and development. You can find out more regarding RDEC here.
How can I claim R&D Tax Relief?
You can claim R&D tax relief by completing the full Company Tax Return form (CT600) and entering your enhanced expenditure into this. You can work out your enhanced expenditure by doing the following:
Work out the costs that were directly attributable to R&D
Reduce any subcontractor or external staff provider payments to 65% of the original cost
Add all costs together
Multiply the figure by 130% to get the additional deduction to put into your tax computations
Add this to the original R&D expenditure figure to get the enhanced expenditure figure which you can enter into your tax return
Once you have submitted this, you can then use the online Government Gateway service to supply further information to support your claim. Follow these steps to submit this information:
Use your Government Gateway User ID and password to log on to the online service
Provide a short summary detailing how your project fits the mentioned criteria:
You looked for an advance in science or technology and aimed to achieve this advance
You had to overcome scientific or technological uncertainty
You overcame this uncertainty
This could not easily be worked out by a professional in the field
Input the start and end dates of the period relating to the R&D activity – these will be the same dates as the period covered in your CT600 return
You will also need to include:
Your company unique tax reference (UTR) number
The total amount of tax relief you’re claiming
A breakdown of your qualifying R&D costs
Your unrelieved trading loss for the claim period
SMEs are eligible to claim up to 33p for every £1 that is spent on the qualifying R&D activities. The average claim made by SMEs in the UK is for £53,876.
Still have questions about R&D Tax Credits? Don't be afraid to talk to us.
Here at J&P we know that innovating and developing projects old and new can be challenging, so we are here to help you find out if you are eligible for credits or benefits that will make your business’ life easier. If you need any more advice on R&D Tax Relief, please do not hesitate to give us a call on 0161 637 1080 or send us a message via social media.
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