How to reduce your corporation tax bill with R&D relief

Businesses in Northern Ireland were recently given a boost when the government published the bill that will allow corporation tax powers to be devolved to Northern Ireland.

In a bid to compete with Ireland's 12.5% corporation tax rate, Enterprise Minister Arlene Foster has suggested lowering the rate to just 10%. According to Northern Ireland secretary Theresa Villiers, around 34,000 businesses will benefit when the power is devolved  in April 2017.

While this is great news for firms across the Irish Sea, businesses outside of Northern Ireland can't expect to benefit from such a low rate for the foreseeable future. How can businesses in England, Wales and Scotland make a difference to their corporation tax bills?

R&D relief for SMEs

If you’re the owner of an SME, you may be able to claim corporation tax relief on your R&D projects. This is known as the Small and Medium-sized Enterprise Scheme.

Under the scheme, eligible businesses can claim a 225% tax relief on R&D costs. This means that for every £1 spent on qualifying costs, your company could claim a corporation tax deduction of £2.25.

Does my business qualify for the Small and Medium-sized Enterprise Scheme?

First, you must work out whether your business qualifies for the relief. For R&D purposes, an SME is a company with:

·         fewer than 500 employees and either

·         has a maximum turnover of €100 million; or

·         has a balance sheet that does not exceed €86 million.

Your business will not be considered an SME if it is a subsidiary of another company that exceeds any of the above limits. Your status as an SME may also be affected if your business holds a 25% share in another company, or if another company owns a 25% share in your business.

Does my project qualify for R&D relief?

You must work out whether your R&D project qualifies for corporation tax relief. According to HMRC, R&D projects must:

·         contribute knowledge or capability to a scientific or technological field; or

·         resolve a problem in a scientific or technological field

·         relate to your business's trade.

You can claim the relief on all qualifying costs associated with the project. These can include:

·         Staff costs: gross salary,employers national insurance, pension contributions

·         Subcontractors/ freelancers: wages (though there are separate rules covering subcontracted R&D expenditure)

·         Resources: energy used, equipment and materials.

We can minimise your tax liability

Our accountants provide a comprehensive corporate tax planning service that will reduce your tax bill while ensuring you stay compliant.

Fill out our contact form, phone us on 01753 892 815 or email info@hmiller.co.uk to improve your tax efficiency.