Innovation is often an important part of a business’ development, with many organisations aiming to find solutions to problems that not only challenge their own work but also the work of other enterprises in their sector. Research and development is therefore a common element of day to day operations.
Many businesses, however, miss out on recompense for their endeavours either through a lack of awareness or a lack of understanding of the relief that’s available to them. This is especially the case for small and medium-sized enterprises, who could benefit most from the financial reward. Here, we investigate R&D tax credits and how they can help SMEs who innovate.
What are R&D tax credits?
R&D tax credits enable businesses that are working to provide innovative solutions to industry-wide problems to claim the money spent on their research back from HMRC. The projects being undertaken must benefit the sector as a whole in some way, rather than just the individual company – so for example, if your business is creating a prototype engine that is more energy efficient than existing ones, you could be able to make a claim.
What are the criteria for claiming?
There are certain criteria laid out by the government which define whether an organisation is eligible for R&D tax credits. As outlined above, businesses must be in pursuit of a product or process that will affect the wider industry in a positive way.
To claim R&D relief for SMEs, there are further stipulations. Your business must:
- Employ less than 500 employees
- Have an annual turnover no greater than €100 million or a balance sheet total of under £86million
- Be a limited company in the UK
- Have been trading for more than one year
Businesses that exceed the above figures must claim under the slightly different RDEC scheme. Fulfilment of the above, however, means that your company could be eligible to claim R&D tax relief of up to 230% of the qualifying costs. In real terms, that means for every £100 you spend on research and development, you can reduce the corporation tax paid on your profits by £230 (inclusive of the original £100 spent).
Making a claim
Claims can be made by inputting the total qualifying expenditure on the Company Tax Return form (CT600). If your business has been investing in eligible R&D projects for a while, but this is your first claim, you can also submit a backdated claim for the appropriate funds.
Speaking to an R&D tax credit specialist can help you determine firstly whether your project qualifies for a claim, and secondly whether you can make a backdated claim on longer term projects. They can also assist with the claims procedure, which can be complex if factors such as overseas R&D are involved. Over 90% of eligible businesses are thought to be failing to claim the relief they’re due, so find out today if you could receive remuneration.