Research and Development Tax Relief is initiated by various governments (including the UK) to encourage and support the companies to develop and research for long-term economic growth. Along with the public sector, the private sector is also receiving benefits from this relief. Let’s explore, how it can be beneficial for your business?
We’ll be discussing the following points in this blog:
- What is research and development tax relief?
- Who qualifies for R & D tax relief?
- Proof of uncertainties and unsuccessful advances
- Type of R & D
You can avail of tax relief against the cost of R&D stated in Part 13 of the Corporation Tax Act 2009 that provides a range of tax deductions and credits for qualifying costs.
You may reach out to us to discuss whether you qualify for this relief or not!
What is Research and Development Tax Relief?
Research and development tax reliefs ensure to aid businesses who are working on innovative projects in science and technology. Companies that are struggling to research and develop an advance in their field are encouraged to apply for this relief. Even, the companies that are unsuccessful in their technological endeavors can also apply for this allowance.
Companies can claim Corporation tax relief if a project fulfills the requirement of R&D as per HMRC.
Projects that qualify for R & D?
To be qualified for R & D, a project should be aimed to achieve advancement in science and technology. The research and advancement in social sciences (Like economics, or pure maths) do not qualify for R & D tax relief.
Additionally, the project in which you are making an advancement must be related to your existing business or the one you are willing to start after getting the data from R & D.
To qualify for R & D relief, you must make sure to explain how your project:
- shows the advancement in science and technology.
- had to control the uncertainties
- have worked to get over those uncertainties
- was unable to be carried out by professionals
The research project should be aimed at enhancing a new process, service, item or can improve something that already existed.
The project you are claiming for R & D relief must be beneficial for the overall field, not just for your own business. This implies that any technology used in your sector for the first time cannot be called an advance for R & D.
If an advance by another company in a service, product, or process that is not publicly acknowledged or available, is also accepted for this relief.
Proof of Uncertainties and Unsuccessful Advances:
A scientific uncertainty means a field professional claims that something is not possible technologically. It also refers to the question of possibility even after getting the required evidence. It means that experts in your field are unaware of advancement or its procedure.
Your company should show that a project has been accomplished after overcoming uncertainties through analysis, research, and testing. As evidence, you can show the project details depicting failures and successes during the project.
Types of R & D:
R & D relief has two types. These types differ based on the size of a company and whether the project is outsourced to you or not.
R&D Relief for Small and Medium-sized Enterprises (SME):
This relief is for you if:
- You are running a small or medium-scale business with fewer than 500 employees.
- Your turnover is less than €100m and your total balance sheet is below €86m.
You may require to mention linked companies and partnerships if you’re SME.
This relief provides companies to:
- Deduct a surplus of 130% for the qualifying expenditures from the annual profit and 100% normal deductions making a total of 230%.
- Claim tax credit of 14.5% in case of surrenderable loss.
Research and Development Expenditure Credit (RDEC):
Large companies can request RDEC for the cost occurring in R&D projects.
The works subcontracted by SMEs or RDECs from large companies can also claim this credit.
It is a tax credit that has been increased to 13% on 1 April 2020 and onward.
So, if your company is investing in R & D, it is worth spending. There are a lot of incentives and support given by the UK government for the companies who want to accelerate in the field of research and development. Ultimately, this relief can help to transform your business.
If you’re looking for further support regarding R & D tax claims, we’d love to know more about your business to provide the right solution. You may contact us now!