Investing in research and development? Check out R&D Tax Credits
Posted on 11th June 2020
As accountants who care about helping our clients (and non-client blog readers!) get as many pennies in each pound as possible, we are passionate about helping you claim whatever tax relief you can get. One area which often goes unnoticed is research and development - or R&D. R&D credits can help companies to get to a better financial position generally, and could prove vital in keeping research and development companies going strong, especially in these testing times...
What are R&D tax credits?
Research and development tax relief supports companies that work on innovative projects in science and technology, and it can be claimed by a range of companies that seek to research or develop some advancement in their field. You can even claim on projects which go on to become ultimately unsuccessful. If your project meets the government definition of R&D, you might be able to claim these tax credits.
So what does the government define as an R&D project?
The work that qualifies for the R&D tax relief must be at least part of a specific goal to make an advance in science or technology. It doesn’t count if it is a social science, for example economics, or a theoretical field like maths. The project must also relate to the company’s trade in some way, whether that is in existence already or one that you will start up as a result of the end result of the research and development process.
When you are looking to get this tax relief, you need to be able to explain the following things:
How the project was set up to look for a particular advance in science or technology, even if it failed to do so;
How the project had to try and overcome some kind of uncertainty throughout its development process;
The ways in which it attempted to do so, again even if it ultimately failed;
It should also be something that was not easy to work out by a standard professional in its field (i.e. there needs to be a good reason for it);
How it developed a new service or product, or worked to significantly improve an old one.
All in all, it must have attempted to provide advances in the field you are working in, and not just the business itself.
What you can claim
If you feel that your R&D project might be eligible, then you can hope to claim one of a few different kinds of R&D tax relief. For small and medium sized enterprises, you can claim for R&D if you have less than 500 staff and a turnover of under 100 million Euros or a balance sheet total of under 86 million Euros. This might include linked partnerships, so you need to be careful to consider that when working out if you are an SME or not. The relief provided for SMEs allows for you to deduct an extra 130% of your qualifying costs from your profit, and to claim a tax credit if the company is making a loss, worth up to 14.5% of the surrenderable loss.
There is also the Research and Development Expenditure Credit, which is for larger businesses. It is a tax credit which is worth 12% of your qualifying R&D expenditure from 1st January 2018 to 31st March 2020, and 13% from the 1st April 2020.
How to claim
The R&D tax relief scheme is a useful system which you might be able to make good use of if you meet the criteria - but how do you actually claim for it? If you think you might be eligible for the R&D tax relief, then you can claim through a specific service set up for that very purpose. They will be able to handle all of the paperwork for you, and in such a way where you won’t have to worry about the details. This is a good idea if you want to ensure that it all goes to plan, or you are not quite certain about whether or not you can actually count as eligible for it. All in all, it’s an easy one to claim for, and it could help out your business greatly in the future. You can find out the full details of how to claim on the gov.uk website here.
Want help with figuring out whether you're entitled to R&D credits for your tech or science project? Feel free to give us a call or drop us an email. We’ll be more than happy to help advise you.
Nicola J Sorrell -
Founder | Xero Champion | IR35 Expert
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