R & D Relief is the biggest Corporation Tax relief available to SMEs, but awareness of the benefits is low in the UK.
Contrary to what most people think, the relief is actually geared towards problem solvers, people who overcome technical uncertainties in their day-to-day work, not just scientists and innovators in white coats.
Sectors such as engineering often consider problem solving to be just another part of their job, but that doesn’t mean that they can’t claim. We’ve prepared substantial claims for engineers, architects and software developers alike who are producing innovative designs as part of their day-to-day work.
Benefits for all
A company doesn’t even need to be profitable to benefit. While profitable companies will save on paying Corporation Tax on their profits, loss-making ventures will be able to surrender their R & D relief value for a tax refund of 14.5%.
For example, one software development company that we successfully made a claim for received a Corporation Tax refund of around £240,000, despite having no turnover. Other recent claims include a £293,000 Corporation Tax saving for an architecture company with £8.1m turnover and a refund of £183,000 for a specialist veterinary referral company with turnover of £12m.
A benefit of the relief is that, unlike grant claims, you don’t have to go out and spend money to receive it. The Government is helping these companies by giving a further enhanced deduction of 130% against profit, so for every £1 of R & D spent you get tax relief of up to £2.30.
You can still claim
The good news is that businesses can submit a claim retrospectively, as long as it is within two years of the end of the relevant Corporation Tax accounting period.
If you’ve already paid your tax, it can mean a cash refund. This could fund your next year’s tax bill, allow for investment or, for a loss-making company, allow them to continue to trade and help with cashflow.
Claims can be made year-on-year, with companies expected to demonstrate R & D they have undergone in that year in order to qualify.
You could claim more than you think
In order to be successful with a claim, a detailed report and financial information will be required in order to demonstrate the company’s level of research and development. Where these claims have been prepared by the SME’s in house, experience has shown us that we often agree that the company and project qualify, but that the qualifying expenditure is only a fraction of what it should be. Getting a third party involved like Haines Watts, takes the burden off business owners by helping them to prepare the report and financial information, deal with HMRC and often maximises the potential relief.
Partnerships, sole traders and LLPs cannot claim – a claimant must be subject to Corporation Tax.
To claim under the SME relief, a claimant must have:
- Fewer than 500 staff
- Below €100m turnover
- Gross assets of less than €86m.
The limits include companies that are within a group, so care needs to be taken when companies are within a group structure. If these limits are breached, the business may still be eligible to claim under the Large Company Tax Relief.
If a project already receives a grant or subsidy, it may not fall under the SME scheme.
Even if the project has ended without reaching its problem-solving objectives, a claim can be made for up to this point.
The relief is ultimately geared towards problem solving, whether that is related to product development or service delivery.
Whereas In the past, research and development has often been associated with high-tech sectors, now a wide range of businesses could now use R & D to unlock tax benefits that can lead to significant cash injections into a company.
Find and contact your local Haines Watts office