R&D Tax Credits are a very niche part of the UK tax code that could bring your company thousands of pounds in tax relief. The following FAQs will help you understand more about what R&D Tax Credits are, who they are for, and how they work. Of course, if your question isn’t answered, we’ll be happy to help.
What are R&D Tax Credits?
R&D Tax Credits are a company tax relief for research and development. They can either reduce a company’s tax bill or, for most small or medium sized companies, provide a cash sum. The aim of R&D Tax Credits is to encourage greater spending on research and development to promote investment in innovation.
How do R&D Tax Credits differ from R&D tax relief?
Good question. ‘R&D Tax Credits’ is a term often used to describe the R&D tax relief schemes offered by HMRC. The Small to Medium Enterprise (SME) and Large Companies schemes are designed to reward research and development activity by providing either relief on Corporation Tax, or cash credits even if the business is loss-making.
These cash credits are technically known as R&D tax credits.
randd uk work with you to claim R&D tax relief and/or tax credits, depending on your company’s circumstances.
How do R&D Tax Credits work?
R&D Tax Credits to date
Between the start of the scheme in 2001 and June 2013, almost 85,000 R&D Tax Credit claims were made, with over £8 billion paid in tax relief on this investment. 75% of claims were made by companies under the Small and Medium Enterprise Scheme, although large companies received 66% of the relief from HMRC.
R&D Tax Credits year-on-year
In the tax year ending April 2012, the number of claims for R&D Tax Credits rose 16.5% to 12,190 from 2011, representing £1.2 billion of business support through the tax system. SME claims rose 20% year-on-year, and Large Company claims rose 8%. Yet HMRC estimates fewer than 5% of qualifying businesses have made this type of claim.
R&D Tax Credit claims are becoming more popular as more businesses understand they can qualify.
What kind of businesses can claim R&D Tax Credits?
There are two very straightforward R&D tax relief schemes HMRC operate: the Small and Medium-sized Enterprises R&D tax relief scheme and the Large Company R&D tax relief scheme. Businesses can claim relief on their research and development activity through either scheme, depending on their size, turnover and balance sheet.
The Small and Medium Enterprises R&D Tax Relief Scheme
Businesses are considered an SME for R&D tax relief purposes if they have fewer than 500 employees and either an annual turnover not exceeding approx. £84 million or a balance sheet not exceeding approx. £72 million.
The Large Companies R&D Tax Relief Scheme
Businesses are considered Large Companies if they exceed the SME threshold, although some parts of a Large Company can be considered an SME for R&D tax relief purposes.
Is my business eligible for R&D Tax Credits?
The size of your business will determine which R&D Tax Credits you are eligible for and how much you can claim, but every business registered in England and Wales is eligible to claim either the Small and Medium-sized Enterprises R&D tax relief scheme or the Large Company R&D tax relief scheme.
How much in R&D Tax Credits can my business claim?
SMEs can receive a maximum of £6.3 million per project for each R&D Tax Credit claim.
A minimum requirement of spending £10,000 per year on qualifying research and development costs in an accounting period has now been removed by HMRC for accounting periods ending on, or after, 1 April 2012.
Depending on your business’ circumstances, your R&D Tax Credit claim could be worth between 8.4p and 30p for every pound you’ve spent on research and development.
What kind of work qualifies for R&D Tax Credits?
Often the problem for businesses is simply recognising that they qualify for R&D Tax Credits, and understanding which business activities count as research and development.
The work constituting research and development for Tax Credit claims is wide and varied, but all qualifying projects follow the same pattern:
A scientific or technological advance
working towards improvements of products or processes
project qualifies for R&D Tax Credits
We’ve worked with companies from a number of different industries and the work they undertook that qualified for R&D Tax Credits. Why not add your company to the growing list?
How much R&D Tax Credits have you claimed for your clients so far?
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