If you run a limited company, you might be entitled to extra funds through R&D tax credits and not even realise it.
You can do this by claiming R&D tax credits on a scientific or technological project, which can be a great way to save some money on your corporation tax bills.
Yet a lot of companies don’t realise or don’t think they’re eligible for one of the most unique tax credit schemes in the UK.
So, how exactly does R&D tax relief work? And how can you be sure your claim will hold water?
What actually is R&D tax relief?
R&D simply stands for ‘research and development’, so the tax credit scheme is all about a research project that a business completes to make an advance in science or technology.
The project must relate to the business’s existing trade – or one that it intends to start – so you can’t claim relief on any old work or project.
Not only must your project make an advancement in science or technology, but that advancement must be a new one.
So, you must solve a problem that no one has been able to do before or be the very first to discover a new method that will simplify existing systems if you want your project to count for tax relief.
That might sound daunting, so when you are designing a project for R&D tax purposes, think about how you can:
- develop a new systems
- customise or adapt systems
- develop a new product
- devise a new method of production
- create a new working process.
Your project is more likely to qualify for R&D tax relief if it includes a set of trials, tests and analysis as part of your journey to solve a unique problem.
Benefits of R&D tax credits
Now that we’ve gone through the basics of R&D tax credits, you might be wondering whether it’s worth doing all that work.
We’re here to say it is.
There are two main schemes that companies can use to claim R&D tax relief, the first being the SME R&D relief scheme.
This first scheme, as you might have guessed, is available to smaller companies with fewer than 500 staff, a turnover below €100 million or a balance sheet total below €86m.
Through the scheme, SMEs can deduct an extra 130% of their R&D qualifying costs from their yearly profit, as well as the normal 100% deduction. Alternatively, they can claim a credit if they are making a loss worth up to 14.5% of the surrenderable loss.
Companies with over 500 members of staff can qualify for the R&D expenditure credit, which is worth 13% of the qualifying R&D expenditure.
But the benefits of R&D go beyond a smaller tax bill. After all, in the process of overcoming technological uncertainty, you might find a unique way to innovate your operations. Could your R&D project give you the edge you’ve been looking for over your competitors?
Need help with your claim?
An R&D claim is submitted as part of your corporation tax return. Unfortunately, though, the already complicated process is soon going to become even more complex.
For instance, from April 2023, the Government has suggested that companies will need to notify HMRC in advance, while detailed documentation will be required, including a breakdown of expenditure and key details of the project.
Stronger compliance checks may also give rise to concerns over the growing complexity of the R&D claims process, so you will need to make sure you get it right the first time.
As accountants for R&D tax credit claims, we can help put your claim together. Contact us today and we can discuss how to start you on your R&D tax credits journey.