Research and Development (R&D) Tax Reliefs
R&D reliefs support companies that work on innovative projects in science and technology. As the name infers, they can be claimed by a range of companies seeking to research or develop an advance in their field.
In short, their availability is designed to encourage businesses to invest in innovation, supporting the growth and competitiveness of the UK economy.
Did you know that R&D reliefs can even be claimed on unsuccessful projects?
These tax reliefs act as a financial aid for your company, by reducing your tax liability, or providing a cash payment.
Does my project qualify for R&D?
The definition of R&D is much broader than you may think. In fact, most eligible businesses are unaware that they’re even conducting it, so it’s always worth checking to make sure.
To determine if your project qualifies for R&D tax reliefs, you will need to meet certain criteria set by the UK government. Here are some key indicators that may suggest that your project is eligible for R&D tax relief:
- The project must aim to achieve an advance in science or technology. This means that the project must seek to create something new or improve upon an existing technology or product.
- The project must be undertaken by a UK-based company that is subject to UK corporation tax.
- The project must involve a level of scientific or technological uncertainty. This means that at the outset of the project, there must be some uncertainty about whether the project will be successful or not.
- The project must involve a process of experimentation, testing, and development. This means that the project must involve a systematic approach to solving a scientific or technological problem.
- The project must have been undertaken in the last two years.
If your project meets these criteria, you may be eligible to claim R&D tax relief. However, it's important to note that each project is assessed on a case-by-case basis, and you should seek professional advice from a tax specialist or accountant to determine your eligibility, and to ensure that you are claiming the correct amount of relief.
Our team of accountants have ample knowledge and experience dealing with the government’s R&D scheme. We have been helping clients across Lancashire file their claims for over a decade.
You’re in safe hands, so do not hesitate to get in touch!
Gow and Partners assess the R&D eligibility, generating robust reports to support your claim with HMRC.
How the Scheme Operates
Our expert accounting team can advise you on the most tax efficient way to deal with your R&D tax relief.
Profit-Making vs Loss-Making
If you’re running a profit-making business, the enhanced expenditure will be deducted from your profits, reducing your Corporation Tax accordingly.
Whereas, if you run a loss-making business, losses can be carried forward or back, or they can be surrendered for a 14.5% tax credit (mixture of both can be utilised in certain circumstances).
SME R&D Tax Relief
You can claim this if you’re a small or medium-sized enterprise (SME) with less than 500 employees and have a turnover of under 100 million euros, or a balance sheet total under 86 million euros. You may need to include linked companies and partnerships when you work out if you’re a SME.
R&D Expenditure Credit
You can claim this if you’re a large company working on a Research and Development project. It can also be claimed by SMEs and large companies who have been subcontracted to do R&D work by a large company.
From 1st April 2023
During his Autumn Statement, the Chancellor announced the following changes to companies that carry out Research and Development and claim R&D Expenditure Credit (RDEC) or the R&D tax relief for small and medium (SME) sized companies.
• The measure increased the rate of tax credit for companies that carry out qualifying R&D and claim the RDEC. The past general rate of 13% has been increased to 20%.
• The additional deduction for claims within the Small and Medium Sized Enterprise Scheme has been reduced from 130% to 86%.
• The rate of the SME payable credit rate which can be claimed for surrenderable losses has been decreased from 14.5% to 10%.
The changes apply to expenditure incurred on or after 1 April 2023.
Relevant Examples
Here are a few examples of how Research and Development (R&D) tax reliefs could benefit a company:
- A technology company invests in R&D to develop a new software product that uses cutting-edge artificial intelligence algorithms. The R&D activities involved significant scientific and technical uncertainties, and the company spent £100,000 on qualifying R&D expenditure. The company can claim an SME R&D tax relief of 230% on this expenditure, resulting in a total deduction of £230,000 from its taxable profits.
- A manufacturing company invests in R&D to develop a new product that is more energy-efficient and environmentally friendly. The R&D activities involve significant scientific and technical uncertainties, and the company spends £500,000 on qualifying R&D expenditure. The company can claim an RDEC tax credit of 13% on this expenditure, resulting in a tax credit of £65,000.
- A pharmaceutical company invests in R&D to develop a new drug that could potentially cure a rare disease. The R&D activities involve significant scientific and technical uncertainties, and the company spends £2 million on qualifying R&D expenditure. The company can claim an RDEC tax credit of 13% on this expenditure, resulting in a tax credit of £260,000.
The Utility of Seeking for Help
Claiming R&D tax relief can be a complex process, since you must ensure that you are claiming the correct amount of relief, not to mention meeting all the necessary criteria.
Moreover, if you're considering making an R&D tax claim, you must also render all the necessary documentation and evidence to support your claim, including project plans, technical reports, and financial records.
This will help to demonstrate that your R&D activities meet the criteria for relief, providing a clear picture of the qualifying expenditure incurred.
Sound like a lot to manage for a busy business owner? That’s because it is.
But to not fret. This is where your accountant comes in, helping you to navigate the process and maximize your claim.
Let Us Help You
Book your 30 minute discovery call today— enjoy a relaxed, no-obligation chat with one of our qualified accounting advisors. We can assess your situation and determine how to best serve and add value to your business.
Alternatively, you can send us a message with any queries (big or small), and one of our team members will get back to you promptly.
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