Research and Development Tax Credits in the UK has been uplifted each year for the past three years and are now at a record high level and are a great benefit to eligible Small and Medium Sized Enterprises (SME). The interesting fact is that many SMEs are not claiming when they could and should be. The R&D tax relief or credit is against corporation tax you have paid, or if you made a loss it is a cash credit at a reduced level.
The current claim rate is at 125% of spend
Currently the benefit is 125% of the value of your eligible spend on R&D. That means if you spend £100,000 on R&D in 2012 you can put an extra £125,000 against your corporation tax – saving you £25,000 in tax that you would otherwise have to spend!
Usually the critical factor for a small business is understanding the scope of what can be claimed in terms of eligible projects and then writing a technical justification to support their claim for R&D Tax Credits.
Some misunderstanding includes that you cannot claim for work done for your clients and that you cannot claim for work undertaken by sub-contractors. Neither is accurate, you can claim for work done for clients so long as it meets the R&D qualification criteria and you held the risk as to whether the desired project outcome would be achieved; and you can claim for work that is contracted out within the UK or abroad, again providing that you hold the risk (note that the claim rate is reduced to 65% of costs for subcontracted work).
Research and Development Tax Credits in the UK can include advances in science and technology to do things like…
- Create a new product or improve an existing product
- Develop a new service or improve an existing service
- Design a new business process such as to improve organisational efficiency
And therefore can include:
- Adapting and developing existing software to create innovative new ways of doing things
- Building complex websites or web based applications Integrating different technology platforms or devices involving complex systems integration
- Creating innovative new software applications involving technology development Using science or technology in an innovative way to create a new product or improve an existing product.
- This could be a new handle or a better lock or a more efficient cleaning process, so long as science or technology is used in an innovative way.
- It can also include things like using science or technology in innovative ways to develop and make better pies or bread.
If you seek help and advice from a specialist you are likely to increase the value of your claim as evidence seems to suggest that many companies under-claim or worse still don’t claim at all because they have difficulty interpreting and applying the guidelines.
How to claim
It is a relatively painless process to make a claim for R&D Tax Relief and you usually get the benefits of a cheque from HMRC (the tax man) in under 28 days from the point you submit a claim for past years. You can look back and claim for your last two company tax years.
Author Linda Eziquiel – R&D Tax Credit claims specialist – call her to have an informal conversation about whether you qualify for R&D Tax Credits on 0771 9439 229.