HMRC’s research and development (R&D) tax relief and tax credit scheme, first introduced in the year 2000, is designed to encourage UK companies to innovate through researching and developing new products which enable scientific or technological advancements in their particular field.
Every year, HMRC gives out over £1 billion in R&D tax relief [http://www.smallbusiness.co.uk/news/opportunities/2483266/millions-in-randd-tax-relief-overlooked-by-smes.thtml], while the average annual claim for any given UK small or medium enterprise is £46,000.
Qualification differs, depending on the size of your business. Generally, your company will only qualify for R&D tax relief if, as a result of the project, knowledge is increased in your field as a whole; the project cannot just have been of benefit to your business. The project must also be related to the industry or field you currently trade in and, if you are an SME, you must own any intellectual property resulting from the project on which tax relief or credits is being claimed. Your SME must also not be in liquidation or administration when you claim.
R&D activities which qualify for relief are not restricted on a geographic basis – all that matters is that the expenditure is tax deductible in the UK. Assuming they fit the bill in terms of qualification, a software development company who do the development work abroad, for example, may also qualify for R&D tax relief.
How is R&D tax relief and tax credits calculated?
For SMEs, tax relief on R&D costs has been set at 230% since April 2015. In practice, this means that, for every £100 spent on applicable costs, corporation tax can be reduced by £130. For large businesses, tax relief is 130%, meaning corporation tax is reduced by £30 on every qualifying £100 spent. This option is advantageous as, should your company have an allowable trading loss, this can be increased by 130% of qualifying costs. This can be carried forward as usual, but not if converted into tax credits.
Should your company make a loss, you can opt to take tax credits, in the form of cash back from HMRC, instead. The amount received in tax credits is calculated by multiplying R&D expenditure by 14.5%. Large companies cannot claim R&D tax credits.
What R&D costs does it cover?
The following costs can be claimed under the HMRC’s R&D tax relief scheme, as long as they meet the definition given here [http://www.hmrc.gov.uk/manuals/cirdmanual/cird81300.htm]:
- Employee costs
- Staff providers
- Payments to volunteers in clinical trials
- Subcontracted R&D expenditure
- Capital expenditure
How we can help
If you think your company may be entitled to claim under HMRC’s R&D tax relief scheme, contact Alpha udit Services Limited. We can determine whether you qualify under the terms of the scheme and, if you do, we’ll help you compile and file your claim with HMRC’s Specialist R&D Unit. There’s no obligation on your behalf, just enquire about our R&D service today and benefit from competitive fees and the years of expertise we boast in helping businesses like yours get what they deserve for all their hard work.