Following a recent consultation (which concluded in February 2015), the government has reconfirmed its commitment to R&D tax credits. Despite the government actively encouraging claims, research indicates that 90% of SMEs eligible are not claiming. While some may be put off by the preparation needed to lodge a claim, many SMEs simply don’t realise that they qualify for this valuable relief.
So what is R&D tax credit exactly?
R&D tax credits enables companies that incur costs in developing new products, processes or services to receive either a cash payment or tax deduction. Essentially this is a HM Revenue and Customs incentive designed to encourage innovation by UK SMEs.
The relief can help fund IT development and technological improvements in a wide range of businesses and is not limited to particular sectors.
Who is eligible for R&D tax credits?
To qualify for SME R&D tax credits, a company must have fewer than 500 employees and either an annual turnover of less than €100m or balance sheet not exceeding €86m.
When determining whether the relief is available, two main considerations apply. These relate to the determining whether the activity itself can be deemed to be research and development. The activity must relate to your company’s trade and achieve an overall advance in knowledge or capability in scientific or technological. Also worth noting is that the research and development does not have to take place in the UK.
The second consideration relates to ensuring the relevant tax conditions are met.
Is claiming really worth it?
Recent reports suggest that British businesses are spending significantly less than their peers in Europe, Scandinavia and the Far East yet it’s broadly agreed that if UK SMEs are to remain competitive both at home and abroad, innovation is critical.
For SMEs that qualify, the average claim is estimated to be in the region of £40,000 – a significant incentive which should not be left to waste.
Loss making SME businesses are now eligible for a repayment of up to 33 percent of qualifying expenditure whereas profit making businesses can claim a tax credit of 26 percent on qualifying expenditure. In the March statement, the Chancellor has increased the rate of relief on qualifying expenditure from 225% to 230% for SMEs.
It’s important to note that claims must be submitted no later than two years after the end of the year in which the moment was spent.
HMRC are due to publish a document this summer which will set out a roadmap for further developments to the scheme. They have also committed to a 2 year publicity programme to raise awareness of the relief.
We would be delighted to meet you to explore how this regime may benefit your business now or in the future
For more information, view our R&D factsheet.
Want to know more? Call us on 01708 475220 or email email@example.com