There are very generous tax breaks for companies that conduct research and development, and HMRC are even actively encouraging companies to claim. It can deliver a substantial reduction in your corporation tax payments or can give you a cash injection if you are a loss making company.
Yet, so many are not claiming and missing up out the chance of reducing their tax bill or getting a cheque back for their efforts.
The reason? Most business owners and their accountants, believe that R&D tax relief is only for organisations that employ people in white coats who peer into microscopes. Nothing could be further from the truth.
R&D tax relief can be claimed for a much wider range of activities than most people realise. To qualify you need to be eligible for corporation tax, which generally means you are a limited company rather than a sole trader or in a partnership. The RIFT Research and Development team can confirm whether the activity in your company meets the HMRC definitions (for more information visit www.riftresearch.com), but broadly it must involve innovation and show an appreciable improvement on anything that has been done before that is in the public domain.
R&D Tax relief can be claimed for staffing costs (for both permanent and external workers), software, consumable items, power and water costs, and certain payments to sub-contractors
Other factors may also come into play, but broadly speaking SMEs can expect to see a return of up to 25% of relevant costs.
Some key features:
All companies, large and small, can claim the tax relief if they undertake work that qualifies, but SMEs have a better rate of tax relief
SME companies can benefit even if they are loss-making - they can surrender the R&D tax losses for cash
The R&D development activity does not need to be successful - abortive or failed projects can be included in the claim
Unlike many grants and subsidies, the tax saving/cash repayment arising from the R&D tax relief, does not need to be allocated against specific expenditure. When the saving or payment is received the company is free to spend it however it likes - no strings attached. Examples include product development projects, process improvements and developing new technologies or innovations. We have recently made claims for engineering companies, software developers, material handlers, dental and veterinary equipment suppliers, printing technology companies, electrical insulation and lifting gear suppliers.
The facts about R&D tax relief:
The UK’s single largest funding source for business research and development
Nearly £6 billion claimed back by UK companies between 2000 and 2010
An average £40,000 annual claim for companies that are classified as SMEs
If you are spending time solving problems because it's not obvious how to achieve an innovation, then it's probably R&D. A good test is if you believe your rivals would say "that's something new, I wouldn't mind stealing that because we couldn't just do that ourselves in a couple of days".
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