R&D tax relief – are you missing out?
A 22% increase in research and development (R&D) tax credit claims made by SMEs over the past year shows businesses are waking up to this valuable relief. If you have never made an R&D claim before, you could be missing out.
R&D tax relief can deliver up to £230 of tax credit on every £100 spent on qualifying research and development activity. The relief is not confined to major projects by research laboratories, tech industry leaders and manufacturers. It can apply to everyday innovations for your own business and it doesn’t matter how little you spend on R&D – there’s no expenditure threshold.
Innovations can be in the form of developing or improving IT systems, products, processes, services, devices or materials, as well as in advancing the state of knowledge in your sector. In short, if your company is taking a risk by attempting to ‘resolve scientific or technological uncertainties’, then you may be carrying out qualifying activity.
R&D takes place in every sector. We have successfully made claims for clients who develop new industrial or consumer products; found new ways to work with existing materials; created new technology products for their marketplace; or simply built specialist software for their own business needs.
It’s not always easy to spot which activities qualify for relief, so it’s worth your while asking us if you think you might have qualifying expenditure.
Claim whether you are making a profit or a loss
If your business is in profit, making a claim covering £50,000 of relevant investment could net your business up to £13,000 in additional corporation tax relief. Assuming the prevailing corporation tax rate at the time was 20%, you will already have received £10,000 of relief by off-setting profits against expenditure in the normal way. That makes a total reduction of £23,000 to your corporation tax charges for the accounting year.
Should your business make a loss, there are two options available to you.
You can simply carry the loss forward and offset it against future profits at the prevailing corporation tax rate. This would give your business up to £13,000 in R&D tax relief in addition to the corporation tax relief of £10,000 (assuming the rate that applied was 20%) on the expenditure.
Alternatively, you can surrender the loss arising from your investment in qualifying activity, and receive an R&D tax credit to boost your cash flow. In these circumstances, the tax credit on a £50,000 R&D investment could be worth up to £16,675 in tax relief.
You can typically claim relief for your last two completed accounting periods. This means that, if you have a qualifying project, you could have a substantial claim waiting to be made.
For help and advice on whether you have a project that qualifies for R&D tax relief, contact Victoria Nicoll.