Get cash back from HMRC with R&D Tax Credits!
As long as you are genuinely investing in R&D projects, there’s a great opportunity to cut your corporation tax bill. Or even get R&D tax credits from HMRC in the form of an actual cheque!So, what do you need to know about Research & Development Tax Relief Incentives?
What are R&D Tax Relief incentives?
The Government wants to encourage businesses to invest in new technologies and scientific development. So they offer generous reliefs and credits for companies who participate in some form of R&D.
With these reliefs, businesses can substantially reduce their corporation tax liability, eliminate it all together, or even receive a cash lump sum back from HMRC.
Claiming this tax refund can therefore give your business a really welcome cash injection. Yet many business owners and SMEs are simply not aware of the potential for saving.
Can any business claim R&D Tax Relief?
There are some limitations on which businesses can claim R&D Tax Relief.
The main criteria you need to know about is that to be eligible your business must be liable for corporation tax.
Businesses that are run as sole traders, LLPs or partnerships are therefore not eligible for the scheme. If your business is run as one of these structures, you might want to consider becoming a limited company. Although we would suggest a review of your circumstances before incorporating.
To claim R&D tax relief, companies must also meet these requirements:
- Be a small or medium sized business for the SME scheme, with less than 500 employees and a turnover less than €100 million, or a balance sheet not exceeding €86 million. (There is a separate scheme for large companies.)
- Have actually spent the money already on research projects – you can’t claim proactively.
- Have undertaken work which, according to HMRC, ‘achieves an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty.’
It doesn’t have to be rocket science
This can sound more complicated than it actually is. You don’t necessarily need to be in a high tech industry or have innovative boffins and rocket scientists. You can claim for R&D tax relief without the need for test tubes, lab coats and fancy scientific equipment.
Whilst your research should be advancing some kind of development in your field and not be easily deducible by others in your industry, as long are you’re making something bigger, better, faster, cheaper or more efficient, then your project would likely qualify.
Misconceptions about R&D Tax Relief
Many companies mistakenly believe you have to be working in a high tech, scientific or medical industries to claim for R&D tax relief. This simply isn’t the case.
There are a few other common misconceptions which many businesses think will prevent them from claiming, such as:
- The company already receives a grant
- They are making taxable losses
- The project is unsuccessful
- They need to own a patent or formal intellectual property
But again these aren’t true!
Even if your business is receiving other grants, or invests in an R&D project which is unsuccessful, you can still claim R&D relief under the scheme in most cases.
For the best advice on whether your company can apply for tax relief or credit, speak to an accountant.
How much could my business save?
The amount you can claim varies depending on the size of your business, and the in-year rates of relief.
Currently, for every £1 your company spends on research and development projects, you can claim tax relief back on £2.25 under the SME Scheme. For a small business, this essentially means your costs are enhanced by 125%!
Cloud Accounting (NI) offers a free initial consultation to discover if you can avail of R&D tax credit.