If your company is involved in Research and Development (R&D) then you could be claiming significant tax breaks. The R&D tax credit was introduced by the UK Government to promote innovation. The relief is generous and often overlooked by companies. It can be an additional deduction from your taxable profit or if you are loss making, the deduction can be cashed in for a refund from HMRC. This blog focuses on how the relief works for small and meduim sized enterprises (SMEs).
Small and Medium Enterprises (SMEs)
HMRC define an SME for R&D purposes as a company or organisation with fewer than 500 employees and either of the following, an annual turnover less than €100 million, or a balance sheet less than €86 million.
From 1 April 2012, the tax relief for SMEs on allowable R&D costs is 225%. So for each £100 of costs that count as R&D, your company could have the profits on which Corporation Tax is paid, reduced by an additional £125 on top of the original £100. From April 2015 this relief will increase to 230%.
If you are a loss making company you may be entitled to a refund from HMRC paid direct into your bank account. You can only get a cash refund if your business is loss making. From April 2014 SMEs get a 14.5% surrender rate when they are loss making. This equates to a 32.63p refund for every £1 spent. To be eligible the company accounts need to be prepared on a ‘going concern’ basis. This means there should be nothing in the accounts to suggest the company will not be continuing to trade in the future.
Who can claim?
To qualify as an R&D cost, any activity must contribute directly to an advance in science or technology or must be ‘a qualifying indirect activity’. Consideration needs to be given to whether your company’s activities fit with HMRCs definition and which costs are relevant. If you are eligible we can claim the costs on qualifying projects, from staffing and management supervision allocation, to the proportionate expenditure on sub-contractors, utilities and materials. We can then put the details on your Tax Return and make a claim to HMRC. R&D relief is only available for ‘revenue expenditure’ (i.e. day-to-day running expenses, not capital items). Claims can be made for costs on R&D projects undertaken (and included in your accounts) over the previous two financial years, as well as the current year.
If you would like help with your R&D tax claim contact us for a free initial consultation.
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