If you want to transform your business, research and development tax credits are here to fuel up your business growth by rewarding you for research and innovation.
Read on to explore how an R&D tax credit can transform your business.
What are Research and Development Tax Credits?
R & D tax credit is the government initiative to incentivise UK companies to accelerate their investment in scientific or technological innovation.
These credits are a great source of cash for businesses to scale up their research and development activities for their business growth.
How Do R&D Tax Credits Work?
Businesses that are involved in developing new products, services or processes or improving existing ones may qualify for R&D tax credits.
If you’re investing money in research and development, you can claim R&D tax credits and get it in the form of cash or corporation tax reduction.
R&D tax credits have a broad scope, covering almost all sectors.
If you’re availing this relief for the first time, you can claim it for the last two accounting periods on which you’ve invested in R&D.
Eligibility for R&D Tax Credits
To be eligible for R&D tax credits, you need to be:
- A limited company paying corporation tax in the UK
- Carrying out qualifying R&D activities
- Spending money on R&D projects
For further details on R&D, visit the HMRC website.
Whether you deal with chemical, agriculture, engineering, construction or digital industry, you can qualify for R&D tax credits if you’re performing research and development activities in any sector.
What Comes Under R&d?
The UK government has proposed broad criteria for R&D.
No matter what your business size is or whatever sector you deal with, if you are advancing to resolve scientific or technological uncertainties that can’t be easily carried out by a professional in the field, it’d be considered qualifying activity.
It includes:
- The creation of new products, processes or services
- Improving or upgrading an existing product, process or service
You can get more information on the government website to know whether you fall within the above criteria or not.
The Cost That Qualifies for R&D
The cost that qualifies for research and development tax credits includes:
- Staff salaries, employer’s NIC, pension contribution and reimbursed expenses
- Freelancers and subcontractors
- Things and consumables used for R&D like light, heat power, etc
- Software used for the R&D process
- Money spend on clinical trials
Types of R&D Tax Credits
As per your business size and other factors like whether you have taken a subcontracted project or not. There are two types of R&D:
1. Small and Medium Size (SME) R&D
If you fall within SME, you can claim SME R&D if you have:
- Less than 500 employees
- A turnover below €100 million or a balance sheet under €86 million
You may also include linked companies and partnerships after knowing that you fall under SME.
With SME R&D tax relief, you can:
- Deduct an extra 130% of your qualifying cost from the annual profit, plus a 100% normal deduction making a total of 230% reduction
- Claim for a tax credit (14.5% of the surrenderable loss) in case your business is making a loss
2. R&D for Large Companies
You’d classed as a large company if you have:
- More than 500 employees
- A turnover over €100 million or a balance sheet above €86 million
Large companies need to claim a Research and Development Expenditure Credit (RDEC) for working on R&D projects.
In addition, a company that has been subcontracted to do R&D work by large companies also need to claim RDEC.
Currently, this tax credit is up to 13%.
Quick Sum Up
To sum up, we have discussed the basics of the Research and development tax credits.
If you’re looking to receive millions of pounds for reinvesting in your business, Accotax has a team of chartered accountants who can help you get the maximum value with the help of R&D tax credits and other grant funding.
Are you looking for professional tech-savvy tax advisors and accountants in the UK to guide you? Contact us now!
Disclaimer: All the information provided in this article on Research and Development Tax Credits for Small and Medium-sized Enterprises, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.
