Using R&D tax credits to your advantage

Companies can claim tax relief and credits from the Government against a wide range of qualifying expenditure if they were incurred during research and development.

According to the Research and Development (R&D) Tax Credits Statistics from September 2020 compiled by HM Revenue & Customs (HMRC), there were 59,265 R&D tax credit claims for 2018 to 2019, as of the end of June 2020.

Out of this total, 52,160 of these are in the Small and Medium-sized Enterprise (SME) R&D scheme. Both SMEs and larger businesses benefited from £3.5 billion in tax relief, which contributed to £24.9 billion in R&D expenditure across the UK.

In previous years, more than £5 billion have been claimed by businesses against qualifying expenditure, so make sure your get your share of tax relief awarded.

However, much of this tax credit does not usually get utilised, and many businesses miss out due to common misunderstandings among smaller firms that only the largest companies or the most innovative projects can claim.

SMEs R&D Relief

Many SMEs can benefit from R&D credits, and there are various tax reliefs to take advantage of.

For example, the SME R&D Relief is available to businesses with less than 500 employees or a turnover below €87 million.

This relief can allow SMEs to deduct an extra 130 per cent of their qualifying R&D costs from their yearly profit, along with the usual 100 per cent deduction to total at 230 per cent.

In the case of a surrendered tax credit, this could mean an additional 33p is granted for every £1 spent on R&D.

To be eligible for this relief businesses need to meet the following criteria:

  • Be a UK limited company that is subject to Corporation Tax.
  • Have completed qualifying research and development activities.
  • Have spent money on an eligible project.
  • Have incurred qualifying expenditure.

A company will usually be eligible for R&D tax credits if its project had:

  • an aim to advance science and technology
  • uncertainties that have been overcome
  • uncertainties that the company tried to overcome (projects don’t need to be successful to qualify)
  • the project should not be something that can easily be solved or understood by a professional in the same field

Claiming R&D tax credits against these developments provides either a reduction to Corporation Tax or a payable tax cash credit if your company is loss-making.

The rules and criteria surrounding R&D tax credits can be complicated and confusing. Therefore, it is essential to seek specialist help. 

For more information on matters relating to R&D tax credits and how they can benefit your business, please contact our experts at RDP Newmans today.

Posted in Blog, R&D, Tax, Tax Blog.