WHAT IS R&D TAX RELIEF?
R&D reliefs support companies that work on innovative projects in science and technology, but other types of innovation also qualify. The incentive is to encourage innovation and increase R&D and spending on R&D by companies in the UK.
It can be claimed by a range of companies that seek to research or develop an advance in their field. It can even be claimed on unsuccessful projects, companies that are making a loss and companies who haven't yet commercialised their innovation.
It’s one of the government’s top incentives for encouraging investment in research and development and allows up to 33.35% of a company’s R&D spend to be recovered as a cash repayment if the company is loss-making.
You may be able to claim Corporation Tax relief if your project meets HMRC's definition of R&D.
Many businesses don’t realise that they qualify for R&D Tax Credits or that they are not claiming their full entitlement.
QUALIFYING FOR R&D RELIEF
The work that qualifies for R&D relief must be part of a specific project to make an advance in science or technology. It can’t be an advance within a social science like economics or a theoretical field like pure maths.
The project must relate to your company’s trade - either an existing one or one that you intend to startup 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
couldn’t be easily worked out by a professional in the field
From 1 April 2021, some SME's will be limited to claim a refund of no greater than £20,000 plus 300% of their PAYE and NIC payments. This doesn't apply in all cases and not to SME's who do not receive a refund but receive the benefit of a reduced corporation tax payment.
R&D RELIEF FOR SMALL COMPANIES
You can claim as an SME if you’re an SME with:
less than 500 staff
a turnover of under €100m or a balance sheet total under €86m
You may need to include linked companies and partnerships when you work out if you’re an SME.
SME R&D relief allows companies to:
Deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total 230% deduction
Claim a tax credit if the company is loss making, worth up to 14.5% of the surrenderable loss
WHAT IS R&D TAX RELIEF WORTH TO AN SME?
For example if you are an SME who have spent £50,000 on qualifying R&D expenditure:
If you are profit-making, your corporation tax will be decreased by £12,350
If you are loss-making, you can apply for a cash payment of £16,675
HOW LONG DOES IT TAKE?
We typically suggest you plan on 8 to 12 weeks, split equally between preparing the claim and giving HMRC to review it.
A well-prepared qualifying application will take 4 - 6 weeks for HMRC's dedicated R&D Team to process.
One of our experts will have a free-of-charge conversation with you to understand your business, your R&D and the expenditure. We will write a brief report for you and suggest wither you qualify or not as the case may be.
If you decide to proceed, our fees are payable on a contingency basis at 20% of the corporation tax effect you receive from R&D. So if the claim is unsuccessful, you have nothing to pay.
If you or your company for other tax or accounting matters, our fee is reduced from 20% to 15%.