Can I Claim for Research and Development Tax Credits?
Research and Development (R&D) refers to the activity a company undertakes to develop new products, processes, or services or improve those that already exist.
R&D is often a risky endeavour for businesses, as they don’t always know if what they are attempting is technologically feasible or economically practical. However, R&D is an essential function for many companies in order to launch new offerings or improve existing ones so that they can remain competitive in saturated markets.
R&D is actively encouraged by the UK Government through a series of tax incentives. As mentioned in our previous blog piece on the Autumn Budget, innovation and R&D were a key focus on the Chancellor’s statement.
Sunak revealed that tax credits would be reformed from April 2023 to improve their effectiveness, by expanding qualifying expenditure to include data and cloud computing costs and to refocus support on innovation in the UK.
What reliefs are available?
Small and Medium Enterprises (SMEs) can claim enhanced deductions against taxable profits for qualifying R&D expenditure. This expenditure allows companies to deduct an extra 130% of their qualifying costs from their yearly profits, as well as the normal 100% deductions, making a total 230% deduction.
For ‘larger companies’, or those that have had the benefit of a grant or subsidy, relief under the SME scheme is not available, and they must instead claim through the Research and Development Expenditure Credit Scheme (RDEC).
The RDEC scheme was introduced in April 2013 and currently has a rate of 13%, increased from 11% in April 2020. For tax purposes, you are classed as a ’large company’ if there are more than 500 employees and if your annual turnover exceeds £100 million and annual profit exceeds £86 million.
Is my business eligible for R&D Tax Credits?
Since the launch of the scheme over 20 years ago, an estimated £26.9 billion has been claimed in R&D tax relief. However, many businesses are not claiming, or not maximising the relief to its full benefit. This is primarily due to not understanding the scheme and its criteria, and so not believing a business is eligible.
To claim R&D, you need to be a limited company in the UK, and pay UK Corporation Tax. If your business is conducted overseas, if you are liable to UK Corporation Tax, you are also eligible for research and development relief.
In order to qualify, the work completed must be a part of a specific project that will make an advance in science or technology, and it must relate to your company’s trade.
You also must explain how the project has had to and has tried to overcome uncertainty and could not be easily worked out by a professional in the field.
How Edwards Accountants can help
There are a number of areas of claiming R&D tax credits that may require specific advice depending on the circumstances of the activities and expenditure.
As experienced chartered accountants and taxation experts, we would be delighted to advise on any R&D matters relevant to your business, so please contact us to speak to one of our trusted team members.
For our West Midlands Offices:
Tel: 01922 743 100