Research and Development (R&D) tax relief can make a real difference to the financial health of companies whose work amounts to even minor advancements in science and technology.
However, complexities associated with the relief mean that many businesses are not certain of their eligibility and hence do not claim what is available to them. In addition, certain intricacies open the schemes up to malpractice and abuse.
In this short Q&A, we briefly cover what the SME R&D tax relief is and how it can benefit those companies that are eligible to make a claim.
Q: What constitutes an ‘SME’ for the purposes of claiming R&D tax credits?
A: According to the HM Revenue & Customs (HMRC) guidance, in order to claim small and medium sized enterprise (SME) R&D relief, you must be an SME with:
- less than 500 employees; and,
- a turnover of under 100 million euros or a balance sheet total under 86 million euros.
If you are a connected company, or you have a partner company, you will need to factor this in to any calculations you do to determine your SME status; consequently, it can be worth seeking the advice of a tax professional so as eliminate the risk of any error.
Q: How can I benefit from the SME R&D tax relief?
A: If you are an SME and you can provide sound evidence to attest to the fact that your work meets the Government’s definition of R&D, you can:
- deduct an extra 130% of qualifying costs from yearly profit, as well as the normal 100% deduction, to make a total 230% deduction; and,
- claim a tax credit if the company is loss making, worth up to 14.5% of the amount being surrendered.
Costs that can be claimed, from the date you begin working on the project to the date that project is stopped or the ‘end goal’ achieved, include:
- a proportion of the costs associated with employees working on the project;
- costs associated with using subcontractors;
- expenditure associated with consumable items used up during the project; and,
- payments made to volunteers recruited – i.e. for clinical trials.
Further information about the costs that can and cannot be claimed for can be found on the Government website here.
Q: How can I make a claim under the SME R&D tax relief scheme?
A: Typically, a claim for SME R&D tax relief is made via the company’s Corporation Tax Return. A claim can be made up to 2 years after the end of the accounting period that it relates to, but it is worth bearing in mind that where a claim covers a duration longer than 12 months, a claim should be submitted for each accounting period.
Once the Corporation Tax Return has been submitted, you can use HMRC’s online service to submit evidence (for example, a summary of your project, the aims that were achieved and a breakdown of costs) in support of your claim.
How can George Hay help?
Our expert tax advisers, in Biggleswade, Huntingdon and Letchworth are able to explain the complex rules associated with R&D tax credits, in layman’s terms, and they can assist you with preparing your claim, to ensure you have the greatest chance of success.
We can also advise you on issues like improving your record keeping, so that you can keep track of all the activities involved in the R&D process and the costs, so that all eligible expenditure is claimed for.
We make sure we understand our clients’ businesses as a whole, so we will not just look at your R&D in isolation. We will build R&D into your business planning so that you can use tax credit benefits as part of an ongoing strategy to grow your business and keep moving forward.
To discuss your current projects, or plans for the future, with one of our professionals, please contact us today.