By Lyndsey Hall
You may have heard some of the recent buzz around R & D tax credits, but you might be wondering what it means and how it could benefit your business. Well, let us give you the lowdown on the government’s latest initiative to help UK businesses:
- Research and Development (R & D) Relief is a Corporation Tax relief that could reduce your company’s tax bill
- For SMEs, it can also be received as a tax credit instead, via a cash lump sum
- Your business can only claim R&D relief if it is liable for Corporation Tax (CT)
What is R&D?
You might think that research and development has nothing to do with your business, but almost every company spends at least some time and money on researching new and improved methods and developing better products and services. The key to R&D is innovation, so if your business is trying to innovate within your own field, and your discoveries could benefit your entire industry, then you could probably make a claim. If your work focusses on science and technology in any of the following industries, you could be in for some huge tax savings:
- Electronics
- Construction
- Engineering
- Logistics
- Motor Sports
- New Media
- Computer Software
- Paint & Coatings
Who can claim?
There are two main R&D relief schemes, the first is aimed at small and medium sized businesses, and the second is for larger companies:
SMEs
For the purposes of R&D, an SME is a company with less than 500 employees, and one of the following:
- An annual turnover of €100millon or less
- A balance sheet of €86million or less
However, for claims dating back to before April 1st 2008, the definition of an SME is a little bit different. Your business must have had fewer than 250 employees, and either of the following:
- An annual turnover of €50millon or less
- A balance sheet of €43million or less
So, it’s very important to get your calculations for previous years correct and make sure that you are applying for the appropriate R&D scheme. Also, if your business is part of a larger corporation that wouldn’t meet the above criteria, then you may not be eligible for the SME scheme – you’ll need to include any company that has a shareholding of 25% or more in your company, and any companies that your business has a 25% or more share in when making your calculations.
If you meet these strict criteria, you could be in for a huge tax saving. Tax relief on qualifying R&D expenditure for SMEs is at a rate of 225%, so for every £100 you spend on research and development, you could claim a reduction of a further £125 on your CT qualifying income.
Remember, your business must still be a going concern when the claim is made, and until any relief credits have been paid; if it is in liquidation or administration your claim will be rejected.
Large Companies
Large companies are any business that exceeds the above criteria, and this scheme includes an ‘above the line’ (ATL) credit which has been introduced for qualifying expenditure incurred on or after April 1st 2013. It will run parallel to the enhanced-deduction scheme as an optional credit, until it replaces the previous scheme in April 2016.
From April 1st 2008 the rate of relief is 130% for larger companies, meaning that for every £100 you spend on qualifying R&D, you could claim a reduction on a further £30 of CT qualifying income.
You can find out what qualifies for R&D relief here.
Subcontractors
Subcontractors may be able to claim relief under the Large Companies scheme; find out if you could claim here.
For both SMEs and Larger Companies, for periods prior to April 1st 2012, relief is only available if you spent at a rate of £10,000 per year on qualifying R&D, but there is no limit for periods after this date.
To find out more about R&D Tax Relief, visit the HMRC website.
If you need any advice about R&D Tax Credits and whether your business could be eligible, speak to the Tax Department or leave us a message in the Comments.
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