R&D Tax Credits Explained
R&D Tax Credits are a tax incentive from the UK Government designed to encourage companies to invest in Research & Development.
They can reduce your tax bill or you can claim payable cash credits usually within 8-12 weeks of your report being submitted as a proportion of your R&D expenditure.
The Government is keen to make the UK an attractive place to innovate and thus the incentives for companies to develop new and existing products, processes and services have continued to improve since its inception at the turn of the century.
What could this be worth?
A profitable SME: In addition to the tax relief your company’s eligible R&D expenditure generates as part of its normal operational costs, a further 86% can be deducted from the yearly profit. That means with an R&D tax credit incentive of up to 21.5%, if you spent £500,000 per year on R&D you could potentially claim back up to £107,500 as a tax refund or reduced tax liability.
A loss-making SME: A payable credit can be claimed by loss-making SMEs. With an R&D tax credit incentive of up to 18.6%, if a company spent £500,000 per year on R&D it could potentially claim back up to £93,000.
A loss-making, R&D intensive SME: To be defined as R&D intensive constitutes at least 40% of a company’s total expenditure being spent on research and development. Businesses in this category are eligible for an R&D tax credit incentive of up to 27%, which means if you spent £500,000 per year on R&D you could potentially claim back up to £135,000.
A large company (RDEC scheme): By offering a tax credit of 20%, companies can claim back up to 20p for every £1 spent on qualifying R&D activities. Whether the company is making a profit or loss is immaterial. If a company spent £500,000 per year on R&D, it could potentially claim back up to £100,000.
Here’s what it takes to qualify for SME R&D tax relief:
Fewer than 500 employees
Under 100m Euro turnover
A limited company eligible to pay UK Corporation Tax trading for over 12 months
A profit or loss making company
Eligibility test:
If you answer “YES” to any of these questions you are more than likely be entitled to R&D Tax Relief
Have you developed or invested in any bespoke products and/or services?
Have you tried to improve your existing products through technical changes?
Have you had to resolve technical problems with any or your products?
Have you experimented with any new equipment or production techniques?
Have you in the past two years employed staff (or outsourced) any with a technical, design or scientific background?
Do you have clients who come to you for your expertise and specialist abilities?
Are you regularly problem solving for your customer needs?
Have any of your projects failed for technical reasons?
For a free and confidential consultation,
please contact us today on 01903 944543 or fill out our contact form for one of our R&D consultants to look into helping you explore the possibility of R&D credits.