HM Revenue and Customs (HMRC) have recently reported that, to date, there has been almost 40,000 R&D tax credit claims for 2016/17 of which over 85% are under the small and medium-sized enterprise (SME) R&D scheme. As more Corporation Tax returns are received, these figures are expected to keep rising. The value of claims for the two previous years, 2014/15 and 2015/16, has also seen a climb, due to revisions of Corporation Tax for those years.
R&D reliefs are available to assist companies who are working on ground-breaking projects in science and technology. Could this apply to you and your company? Get in touch! HMRC are reporting that R&D claims appear to be concentrated in companies with registered offices in London, the South East and East of England this does not mean that is where the R&D is taking place. It certainly does not mean that companies ‘Up-North’ are not carrying out work that would qualify for the tax credits.
The tax credits are hugely beneficial. For SMEs, the R&D relief allows a 130% uplift on qualifying expenditure from their annual profits. This is as well as the usual 100% deduction. If the company is loss making, there is an option to surrender the loss in exchange for a 14.5% tax credit.
For the larger companies which do not fall within the SME limits, relief for R&D projects is available under the Research and Development Expenditure Credit (RDEC) Scheme. This works by giving a tax credit equal to a percentage of the company’s qualifying expenditure. Up to 31 December 2017, the tax credit was 11% of qualifying expenditure. This was increased to 12% from 1 January 2018.
Many companies are missing out on the valuable reliefs as they believe they are just doing their job and there is nothing R&D about that. This is, in most cases, not entirely true and is definitely worth a discussion with a specialist. The project must relate to your company’s trade to qualify and the trade can either be an existing one or a one that the company intends to start based on the results of the R&D. New processes and products or improvements to existing ones can all qualify for R&D and remember, it does not have to be successful – failed R&D projects are still R&D projects.
In order to qualify and obtain the relief you will need to complete a report. This should outline how your project looked for an advance in science and technology. Important factors to include, did you overcome uncertainty and how. The report will also cover the qualifying expenditure incurred by the company as a result of the project such as: staff costs which are gross salaries including employers National Insurance contributions and pension contributions, consumable items such as materials and utilities and subcontractors costs (subject to a restriction).
If you think your company is carrying out any projects which may qualify for the relief then please contact our tax team on 01228 711888 for an informal, no obligation chat.
Posted: November 6th, 2018