Good things to know about R&D Tax Relief
The top fact to keep in mind is that Research and Development Tax Credit is only available to limited companies and there are different schemes for SMEs (Small and Medium Enterprises) and large companies.
The type of costs you can claim for have been defined by HMRC and the key ones are listed below.
- Staffing costs including wages, employers’ Class 1 NIC, employers’ pension contributions, and any other direct staffing costs.
- Software and consumable items relating to development work.
- Water, fuel and power relating to development work.
- Externally provided workers doing R&D work.
- Prototypes and costs relating to manufacturing trials of R&D Projects.
- Clinical trial volunteers on R&D Projects.
- Subcontracted R&D work (qualifying at 65% of cost only).
Claims must be lodged within 2 years after the end of your company’s accounting period for corporation tax purposes. Timing is therefore critical or you can lose a year of benefits and that could be worth thousands.
The rate of claim or relief is is calculated by enhancing the amount of deductible R&D costs you can claim beyond what would normally be chargeable against you taxable profits as a corporation tax charge. The uplift levels are as follows:
- Up to 31st March 2011 – 175%
- Up to 31st March 2012 – 200%
- From 1st April 2012 – 225%
If the effect of enhancing your R&D costs is to create a taxable loss then a cash refund can be claimed, although this is subject to a discount, as compared to when the credit is set against taxable profits.
Because you can look back over the past two years, if you are making a new claim, you will often have overpaid on corporation tax, so you get a cheque from HMRC to refund the over-payment, likewise a cash credit will give rise to a cheque for the value of your cash claim.
Many companies under-claim because they do not know how to scope out their research and development activities, so it is worthwhile getting in an expect, usually they will more than cover their costs by increasing the level of your claim …. read more on what’s involved in making a claim.
Are you ready to find out if you qualify or how much your R&D claims could be worth?