R & D Tax Credits
Many companies are surprised to learn they qualify for R&D Tax Relief.
R&D Tax Relief can prove to be a valuable source of funding. If you have developed new or improved products or processes, you may have fulfilled a qualifying activity.
The key test is to establish if your company is conducting a project that seeks to achieve an advance in science or technology?
The 'advance' refers to overall knowledge or capability in a field of science or technology. It does not simply mean an increase in the company’s own capability. It can, however, include the adaptation of existing knowledge where this adaptation was not readily deducible.
How much could my R&D claim be worth?
How much a claim is worth depends on how much money you have spent on qualifying R&D activity.
Eligible costs can include appropriate expenditure from the following:
Staff costs, including employers NIC and pensions.
Subcontractors (restricted to 65%).
Software and consumable items.
For Small and Medium-sized Enterprises, the headline rate is 230%.
The company gets 100% relief for the qualifying expenditure through its Accounts, so the enhancement is another 130% on top.
For profitable companies that pay Corporation Tax, this enhancement generates relief at 19%.
A company with an eligible expenditure of £20,000 will see a total reduction in its Tax liability of £8,740 (£20,000 x 230% x 19%).
However, a company with a trading loss can also claim and generate a repayable Tax credit calculated at 14.5%. For example, a company has a current year trading loss of £50,000 and qualifying R&D expenditure of £20,000.
The loss is the lower of £50,000, and £20,000 x 230% = £46,000. Therefore, the repayable tax credit is £46,000 x 14.5% = £6,670.
This is ‘free money’ from the Government
Companies have two years from the end of an accounting period to submit R&D Tax claims for qualifying expenditure incurred in that period. We recommend working with our experts in this specialist area when submitting a claim to ensure the value of your claim is maximised. This means including everything that is valid, while also ensuring it can be robustly backed-up should HMRC challenge it.