R&D Tax Credits
For companies that want to push the envelope and change the face of their industry, the R&D tax credit is the perfect opportunity to reinvest in yourself.
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R&D Tax Credits
The United Kingdom has an ambitious plan for rebuilding the nation’s economy in 2022. A key component of that strategy is promoting research and development among small to medium-sized businesses as well as larger corporations. The UK government is looking to increase the country’s R&D investments to account for 2.4% of the nation’s GDP over the next six years.
The research and development (R&D) tax credit is built to help incentivize businesses of all sizes to reinvest in themselves, uncovering industry-wide advancements that improve the entirety of their field. For Britain’s tech-based industries, R&D tax relief is a lifeline that provides the financial impetus for innovation.
Unfortunately, many companies are wholly unaware that the tax credit exists. Even if they are aware, they might not consider their company’s business-related activities to fall under “Research and development.” At the centre of the government’s plan is a push to educate the public on the existence of the R&D tax credit, including a clear, concise view of the necessary qualifications and process for claiming the benefit.
How TAX SAVVY takes the stress out of R&D Tax Credits
- If you need help determining if you qualify for R&D tax relief we can help review your business activities and see if any of your projects meet the specified criteria
- The scope of your project must rise to a certain level in order to qualify for the credit. We can help calculate your qualified costs so you understand what relief you are eligible for
- We can also help with other areas such as VAT returns. Using us to help with your accountancy needs gives you the time to focus on innovating and pushing technological advancements.
- As with other areas of tax, we can act on your behalf for any correspondence with HMRC.
Need help determining if you qualify for R&D tax relief ?
If you’d like to find out more about our R&D tax services or need help calculating your qualified costs, please don’t hesitate to get in touch
How Do R&D Tax Credits Work?
The R&D tax credit is designed to reward companies with additional incentives for engaging in research that contributes to their field’s prosperity as a whole. The money obtained from R&D tax credit utilization can easily be reinvested in your company, letting you hire staff and get the resources necessary to scale your operations to meet the demands of your innovation.
Research-based tax relief can come in several different forms depending on your company’s size and the scheme under which you file. Those schemes include:
- Small and medium-sized enterprises (SME) tax relief
- Research and development expenditure credit (RDEC)
Therefore, depending on which scheme you are eligible for, you may receive your tax relief in any of the following ways:
- Cash rebate
- Corporate tax relief
No matter which scheme you qualify for, the R&D tax credit is built with flexibility in mind. You may apply for relief up to two accounting cycles (24 months) after your R&D activities have concluded.
Claiming R&D Tax Credits
Eligible projects
The R&D tax credit offers businesses an attractive incentive for engaging in business-related research, but how do you know if your project qualifies? Fortunately, the government gives a clear prescription for eligibility.
Your innovative venture must be scientific or technological advancement, and it must be concrete; you cannot gain tax relief for something theoretical without a clear application to an existing industry. To know if your project qualifies for R&D tax relief, you must be able to answer these four questions:
- Does my research seek to make advancements in my field?
- Have qualified professionals within my field previously been unable to solve this particular problem?
- Was the efficacy of my proposed solution surrounded by uncertainty before I completed my research?
- Can I demonstrate a clear and repeatable method for eliminating that uncertainty?
Qualifying costs
The scope of your project must rise to a certain level in order to qualify for the credit. Assuming it does, what costs are you able to include when calculating your benefit?
- Staffing costs, including salaries and retirement contributions
- All subcontractors used in pursuit of the research
- Many types of specialized software
- Consumable items
- Payments to clinical trial volunteers
According to HRMC, the following costs are unfortunately excluded when figuring your relief amount:
- Production of goods and services
- All capital expenditures
- Infrastructure such as land
- Trademark development
Commonly asked questions
What happens if your project fails to achieve the proposed solution? As long as the research effort was made in good faith, you are still eligible to claim your expenditures. If your business is in the process of shedding costs and is loss-taking, you’re still eligible for the benefit as well.
What if your UK-based company is currently operating overseas? You still qualify for R&D relief as long as you meet your corporate taxation obligations. So there is no confusion; if you are a subcontractor doing work toward R&D for a larger firm, chances are you qualify as well.
Types of credits
For a loss-making SME, we have a few options available to us. The first two work in the same way as the profit-making SME example above. The final one results in a cash refund and is often the route taken:
- Carried back to the previous accounting period
- Carried forward and offset against future profits
- Surrendered to HMRC in return for a tax credit (example below):