Claiming R&D relief for SMEs

While innovation is a key driver of the economy, businesses often struggle to divert enough resources into research and development (R&D) while keeping their day-to-day operations running smoothly. Luckily, those engaged in R&D are able to legally alter the amount of tax they pay.

R&D tax credits allow businesses engaged in R&D projects to receive a tax deduction based on the costs incurred on the project.

The government offers 2 separate schemes: the Small and Medium-sized Enterprise Scheme and the Large Company Scheme. Both schemes carry different criteria and deductions, with the SME scheme offering more favourable tax incentives.

The SME Scheme

Under the SME Scheme, businesses can claim a 230% tax relief on costs associated with R&D projects. This means that for every £100 you spend on qualifying costs, the income on which you pay corporation tax on is reduced by a further £130 (on top of the £100 already spent).

Your company must meet the SME criteria in order to qualify for the scheme. For R&D relief purposes, an SME is a company that:

·         has an annual turnover of €100 million or below

·         has a balance sheet of €86 million or less

·         has fewer than 500 employees

·         is not a subsidiary of a larger company.

Keep in mind that fulfilment of the SME criteria could be affected if your company holds 25% of another company’s shares, or if another company has a 25% stake in yours.

What is a qualifying project?

Your R&D project has to meet one of 2 key criteria to qualify for relief: innovation or uncertainty.

This means that in order to qualify for the relief, your research must either:

·         innovate to progress ‘overall knowledge or capability’ in scientific or technological fields

·         resolve a scientific or technological uncertainty.

You’ll need to explain and provide evidence for how your project either innovates or solves an uncertainty. Think about what your project achieved, why it was necessary and how it benefits others in scientific or technological fields.

What is a qualifying cost?

The expenditure on which relief is available can be broadly categorised into 3 main types:

·         Staff costs

You can claim relief on the costs of staff working on your R&D project. Staff costs include salaries, employer national insurance contributions and pension contributions.

·         Subcontractors

Using subcontractors during your R&D project is an expense that qualifies for relief. Your business may be able to claim back 65% of subcontractor costs if it is already receiving relief under the SME Scheme.

·         Consumable items

Any items consumed during the project are eligible for relief. Materials and energy are examples of consumable items.

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Our expert accountants can minimise your exposure to corporation tax, file your tax returns and ensure your business makes the most of the available reliefs and allowances.

Fill in our contact form, call us on 01753 892 815 or email to learn more about our corporate tax planning service.

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