Is your company missing out on R&D tax credits?

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By Karen Staley, Director, Geens Chartered Accountants.

Statistics from HMRC show that more companies than ever before are claiming tax relief for Research and Development.

Newly released data shows the Government is estimating total claims of close to £5 billion for 2017/18 compared to just over £3.8 billion two years ago.

However, only one per cent of active companies are claiming the relief, meaning many companies may be missing out on a valuable tax credit, and with 61% of the money being claimed by companies in London, the South East and East of England regions, firms in Stoke-on-Trent and across the West Midlands may not be claiming their fair share.

R&D tax relief is designed to encourage greater R&D spending, leading in turn to greater investment in innovation. A successful claim will work by either reducing a company’s liability to corporation tax or by HMRC making a payment to the company

The biggest concentration of claims remains in manufacturing, IT and professional, scientific and technical sectors as with previous years. The construction industry saw a rise in claims along with the health and social work industry and the food industry.

Karen Staley, of Geens Chartered Accountants, said: “The good news is that more companies than ever before are aware that they can qualify for this valuable tax relief and this is contributing to innovation across UK industry, However, it is clear that many companies are missing out and may not be aware of the tax relief at all.

To qualify the company must be carrying out research and development work in the field of science or technology. The relief is not just for ‘white coat’ scientific research but also for ‘brown coat’ development work in design and engineering that involves overcoming difficult technological problems. This can include creating new processes, products or services, making appreciable improvements to existing ones and even using science and technology to duplicate existing processes, products and services in a new way. But pure product development, in itself, does not qualify.

Some examples of qualifying activities include software development, engineering design, new construction techniques, bio-energy, cleantech, agri-food and life and health sciences.

Judging which projects and activities will qualify for R&D tax relief is usually the area where most people seek help.

Who can claim?
You can claim R&D tax relief if you are a SME with:
• less than 500 staff
• a turnover of under €100m or a balance sheet total under €86m

There are additional considerations if your company has external investors.
You cannot claim SME R&D relief if the project is already getting notifiable state aid or you’ve been subcontracted by another company. However, you may be able to claim R&D expenditure credit (RDEC).

How do R&D credits affect your tax bill?

Small or medium-sized enterprise (SME) R&D tax relief allows companies to:
• deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total 230% deduction
• claim a tax credit if the company is loss making, worth up to 14.5% of a trading loss.

What can be claimed for?

Companies can claim certain costs on the project from the date you start working on it until you develop or discover the advance, or the project is stopped.

To find out more, contact Karen Staley by email at karen.staley@geens.co.uk or by telephone, 01782 847952

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