R&D Tax Credits
Did you know 55% of businesses in Germany make a claim for the equivalent of the UK Research & Development (R&D) tax credit, but only 35% claim in the UK?
Is your business missing out?
Are you interested in finding out how to fund your business through green innovation?
R&D tax credits are a government incentive designed to reward UK companies for investing in innovation, such as low carbon technologies.
They can be a valuable source of cash for businesses to invest in accelerating their R&D, hiring new staff and ultimately growing.
Here is a brief guide to help further:
What is the R&D Tax credit?
- To stimulate innovation in the UK, there is an enhanced tax allowance for qualifying expenditure in a qualifying R&D project available to businesses.
- An additional 130% of the costs incurred on R&D are available as a deduction against corporation tax profits.
How much is it worth?
- R&D costs are normally allowable against corporation tax, but with this relief you get tax relief on more than you spent, the additional benefit for qualifying expenditure is nearly 25% in additional tax saving.
What if you are not paying any corporation tax yet?
- A lot of businesses that are in the early stages of R&D have not reached the point where they are making a profit and so a corporation tax relief is no use to them BUT there is a way to turn the relief into cash even in those circumstances.
- For small businesses [larger businesses have different rules] the relief allows a claim of 14.5% of the total R&D Tax credit to be claimed even if no tax is currently due by surrendering the R&D credit in exchange for the 14.5%.
How do the numbers work out?
- Let us say that you had £100,000 worth of qualifying expenditure in a qualifying project what would this relief give you?
- You would already be getting tax relief on the £100,000 cost in your accounts, but you would get £130,000 of enhanced relief at 19%, or £24,700.
- If you are not yet paying tax you could surrender the relief and get 14.5% on the total spend, or £33,350.
What are the rules to qualify?
- The work that qualifies for R&D relief must be part of a specific project to make an advance in science or technology. It cannot be an advance within a social science – like economics – or a theoretical field – such as pure maths.
- The project must relate to your company’s trade – either an existing one, or one that you intend to start up based on the results of the R&D.
- To get R&D relief you need to explain how a project:
- looked for an advance in science and technology;
- had to overcome uncertainty,
- tried to overcome this uncertainty;
- could not be easily worked out by a professional in the field.
- Your project may research or develop a new process, product or service or improve on an existing one.
How do I apply?
- This is a specialist area and to ensure that you maximise your claim without breaking the rules you should seek professional advice from an accountant who is experienced in the field.
- For more information see: https://www.gov.uk/guidance/corporation-tax-research-and-development-rd-relief
This summary Q&A guide to R&D tax credits, and how your business can benefit was provided by experienced Chartered Accountants, Seagrave French, who specialise in owner-managed businesses and start-ups.
T: 0115 9415193