R&D in the UK: a background
Global trends are moving towards knowledge and innovation. The reason is because the economic prosperity of most countries, including the UK, depends on their ability to innovate and expand when it comes to science in technical expertise.
The UK government has launched a business innovation strategy for increasing Research and Design activities towards boosting economic growth in future.
Are you claiming R&D tax relief?
This EU funded strategy is aimed at increasing the participation of SMEs including medium and large companies in R & D so as to boost innovation. Such companies are usually eligible for R&D tax relief.
Successful claimants of this tax relief receive reductions in future tax liabilities as well as cash-backed refunds. Unfortunately, out of the 150,000 to 200,000 companies eligible for the R&D tax relief, only about 10% – 13% actually make any claims.
HMRC plays a part in helping companies claim this R&D tax relief by introducing a scheme that encourages companies to apply for advanced approval.
This implies that if HMRC confirms you are involved in R&D activities, your organisation will be placed in a preapproval process that ensures your claims are unchallenged for the next three years.
How do you qualify?
Does your company undertake R&D activities? Briefly, R&D activities are those that attempt to advance or improve knowledge or ability in science or technology through resolving uncertainties. If your work involves addressing questions such as ‘how can this be done?’ or ‘what happens if this is done?’, chances are you are involved in R&D activities. If you are involved in designing a product for yourself or a client and how you would create that product is uncertain, you likely qualify for R&D tax relief.
Finally, you also qualify if the resolution you are looking for cannot be ‘readily deducible by a competent professional in that field’. This may be interpreted as not being able to just ask a competent professional how to solve the problem due to its unique nature. If this is so, then according to HMRC, you qualify for R&D tax relief.
There are two ways you can take advantage if you qualify.
First, you are making profit, this can be reduced by 230% of your R&D expenses, for tax purposes. This means you will be saving £26 in corporate tax for every £100 spent in R&D activities. But if you are making loss, you can trade this claim for enhanced R&D expenditure for cash which translates in 14.5% of your R&D losses.
While HMRC regard a number of costs as R&D expenses, in most cases the core cost is staff costs which comprises the biggest chunk of expenses in most businesses. This means that your benefits through R&D tax relief claim become quite substantial.
As was stated earlier on, so many companies are eligible for R&D tax relief you’ll be shocked. And only very few lay claim to this tax relief that can unlock substantial benefits for them. We can help you claim your R&D tax credits. Contact us now by phone or email for consultancy on your needs.
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