Tips for understanding Research & Development Tax Relief for your business
The Research and Development (R&D) Tax Relief scheme are Government tax breaks designed to encourage innovation by incentivising companies to invest in R&D, enabling them to reduce their tax bill or claim payable credits on a proportion of their R&D expenditure.
What can help you qualify for an R&D tax relief?
While R&D tax relief is available to any company undertaking a project which seeks to achieve an advancement in science or technology, many business owners do not know they can apply. In fact, just 19 per cent of companies actually classify their businesses as ‘innovation active’, despite the UK government actively encouraging technical innovation in business.
What’s it worth?
Companies engaged in qualifying R&D are eligible for an enhanced Corporation deduction equal to 230 per cent of the R&D expenditure. This equates to a tax benefit of around 25p for every £1 spent on R&D.
For loss-making SMEs incurring R&D expenditure in the year, it is possible to surrender some of the loss to HMRC for a tax repayment of around 33p for every £1 spent on R&D.
Large companies carrying out R&D receive a tax credit of around 12p for every £1 spent on R&D. This R&D Expenditure Credit is payable to the company net of tax and also can be surrendered to other group companies.
- Staff costs of those working on a project, subcontractor costs (65 per cent allowable), and certain other overhead expenses.
- Developing new or improved products, processes, services or systems.
What criteria does your business need to meet to qualify for R&D?
Eligibility is not limited to activities taking place in laboratories and science-based research centres. R&D Tax Credits can often be claimed in far broader areas and various enterprises could qualify for significant tax reductions and gain a cash flow boost. Loss making companies can even claim back tax they haven’t paid in the first place.
Examples of where your business might quality for R&D tax relief include:
– You are developing products improved by technology.
For example, we managed to secure £129,000 R&D tax back for a game developer which proactively developed 3D action games for mobile and tablet devices and other digital applications.
– Your business has conducted research and development to improve current systems to maximise the efficiency of production and performance.
For example, we were approached by a digital marketing company which had developed an innovative technology platform to facilitate project development. We were able to get £24,000 back for them from the government R&D tax relief scheme.
– Your business is actively involved in building new software or systems to provide better services.
For example, we were able to claim £161,000 back for a travel agency client of ours which had developed a suite of virtual corporate travel tools.
– You have developed a specialised solution to solve a certain client problem.
For example, a property consultancy developed a project collaboration tool for property developers, construction and installation companies. We were able to claim £68,000 of government money back on their behalf.
The R&D tax reliefs can be extremely beneficial for those engaged in qualifying R&D, and Beavis Morgan can help your company maximise the benefits of the reliefs by:
– Ascertaining whether you are eligible to qualify
– Preparing a robust report for submission to HMRC
– Identifying and capturing expenditure on qualifying activities
– Being prepared for and managing an audit by HMRC