Your business may not be using scientific laboratories but, if you’re researching and developing new ideas or looking to improve existing ones, you may be able to take advantage of research and development (R&D) tax relief.
225% relief from corporation tax for SMEs
R&D tax relief schemes are designed to reduce the corporation tax burden for businesses. For SMEs, any running costs you have incurred in R&D activity since 1 April 2012 are eligible for 225% relief on the tax due. In addition, allowable trading losses related to R&D can be increased by 125%.
For R&D tax relief purposes, SMEs are defined as those with:
- fewer than 500 staff and either
- a balance sheet of less than €86m; or
- an annual turnover of less than €100m.
You may choose to receive a tax credit rather than a reduction in their Corporation Tax payment. But you must still be liable for corporation tax and you won’t qualify for the additional trading losses mentioned earlier.
Qualifying criteria and costs
There are, as you would expect, fairly detailed qualifying criteria for this tax benefit. In order to claim, you need to:
- be clear about the technical or scientific development being worked on and why R&D is needed in this particular area
- provide details of how the problems you have encountered are being solved
- explain why hasn’t it been possible for anyone to easily figure out a solution before your organisation began this work
- show that the advance you’re working on is one which will take forward thinking within the area technology or science concerned, and not just improve your own company’s way of working or thinking.
Tax relief can be claimed on day-to-day running costs but not capital expenditure. Claims can be made for software, premises and equipment if they are being used for research and development and it is also possible to claim for staff costs – including pensions, national insurance contributions and bonuses – if staff have been involved in R&D activities.
10% relief on profits from patented products
The Patent Box allows companies that own, contribute to or develop patents to claim a lower rate of corporation tax on profits related to products associated with these patents. The Patent Box benefit is being phased in so that a larger amount of profit will be included in the benefit calculation each year from 2013. This will result in a 10% discount on corporation tax profits by April 2017.
We can make it simpler
Understanding the requirements can be complex, particularly if you’ve received a grant or subsidy for R&D that may affect the amount of tax relief you can claim. But it’s important to find out if you can benefit from either of these schemes and we can help you assess whether your business activities are likely to qualify.
Contact us on 020 7330 0000 or email email@example.com to discuss your eligibility to make an R&D relief or Patent Box claim.