Innovation is an integral part of business development, and many organisations seek solutions to problems not only affecting them directly but that also impact the work of other companies in their sector. Research and development is therefore a common – and indeed necessary – element of daily operations.
Many businesses, however, miss out on recompense for their activities either because they aren’t aware of it or because the claims process seems insurmountably complex. This is particularly applicable to small and medium-sized enterprises, who could benefit most from the relief. Here, we investigateR and D tax credits and how they can help SMEs who innovate.
What are R andD tax credits?
R and D tax credits enable businesses that are carrying out projects to solve industry-wide problems to claim the money spent on their research back from HMRC. The activities being undertaken must benefit the sector as a whole, rather than just the individual company, and the business must be able to demonstrate that another expert in the field cannot easily find a solution.If, for instance, your organisation is creating a prototype engine that is more energy efficient than existing ones, you could be able to make a claim.
What is the criteria for claiming?
As set of stipulations has been laid out by the HMRC R and D division, which determine whether a company is eligible for R and D tax relief. In addition to seeking a solution for an industry-wide problem,a business must meet further requirements to be able to claim under the SME scheme.These include:
- Employing less than 500 employees
- Having an annual turnover that doesn’t exceed €100 million or a balance sheet total of less than€86 million
- Being a limited company in the UK
- Trading for a minimum of one year
Businesses exceeding the above figures must claim under the RDEC scheme, which is slightly less generous. Fulfilment of the above, however, means that your organisation could be eligible for R and D tax credits equating to as much as 230% of the qualifying costs. In real terms, this means for every £1 you spend on research and development, you can reduce the corporation tax on your profits by £23.
Making a claim
Claims are made on the Company Tax Return form (CT600). Add up the total qualifying expenditure for the project including costs associated with materials, staffing and utilities, and fill in the relevant section on the form.
Enlisting the help of an R and D tax specialist will be invaluable, especially if it’s your first claim. They can determine whether your project is eligible for a claim, identify qualifying costs,and assist with processes which many businesses find complex. With help to provide supporting documentation and accurate calculations, there’s no reason why you shouldn’t receive the appropriate remuneration for your efforts.