R & D tax credits
Any limited company has the potential to benefit
The UK Government introduced Research & Development (R&D) tax credits for Small & Medium Enterprises (SMEs) in 2000 and for Large Companies in 2001. Any limited company has the potential to benefit.
Both schemes work by reducing the amount of corporation tax payable by a company, or there is a cash payment available if a company made a trading loss. The amount that can be claimed is based on your qualifying R&D costs each year.
The big challenge for companies and their tax accountants is in understanding what qualifies as R&D and how to cost their research and development activities.
In a Government funded review Lord Dyson (the innovator and entrepreneur) wrote:
“…R&D Tax Credits have the advantage that they seek to help companies that are themselves prepared to invest in R&D. Government does not need to choose sectors or companies, with the result that R&D can be encouraged in the widest possible range of sectors, taking advantage of businesses’ own insights into likely breakthroughs.” The Dyson Report on Innovation 2010
Download our R&D General Information Leaflet to see a list of the types of industries and activities that have successfully benefited from R&D tax credits or click here see if your company could qualify.
There are several misconceptions that lead to companies not claiming what they are due. Three common ones are:
That only cutting edge R&D done by people in laboratories counts
– this is not true e.g. claims from software developers, precision engineers and food manufacturers are common.
That you cannot claim for activities where you made a charge to your customer
– this is not true, you can claim for all activities where you held the financial and commercial risk on achieving the outcomes.
That you have to own the resulting Intellectual Property from your R&D activities
– this is no longer the case as this requirement was dropped in 2009.
Retrospective R&D claims
Retrospective claims can be made going back two years based on a company’s accounting year-end – i.e. during the current year you can claim for the last two completed accounting years. If you have already paid corporation tax on trading profits in those years, a R&D claim will result in the repayment of overpaid taxes. This can be a substantial ‘windfall’ of cash straight to your bottom line.
Are you ready to find out if you qualify or how much your R&D claims could be worth?