What are R&D tax credits?
R&D tax credits appear to be one of the most untapped tax-saving tricks around. R&D stands for “research and development”, and generally encompasses any investment into the development of new products, processes, services or technologies; or the enhancement of existing ones. In 2000, the government introduced a tax relief scheme that would encourage businesses to invest more into innovation, with a mind to making UK businesses more competitive in the long term. The R&D tax credits can reduce taxable profit, sometimes even as far as to a tax loss, thus lessening a company’s corporation tax liability. It is also worth noting that the R&D tax credits can be redeemed irrespective of whether or not your business is profitable.
And yet, it has been shown that figures as high as 95% of businesses eligible for R&D tax credits are yet to claim. This is due, in part, to preconceptions about research and development. Many people believe that R&D only encompasses the work done by scientists in white coats in laboratories, but that is, in reality, not the case.
Is my business eligible to claim R&D tax credits?
Many companies that believe themselves to be ineligible for R&D tax credits would actually be able to claim. Despite preconceptions about just who is eligible to receive R&D tax relief, any company that spends money on developing new products, processes, services or technologies; or indeed on enhancing pre-existing ones, is able to claim the relevant tax credits.
What R&D costs can I claim on?
R&D expenditure includes staff costs, such as wages, employer NIC and pensions contributions; expenditure on subcontractors and freelancers; the cost of consumables such as heat, light and power which are used for, or transformed by, the research and development process; and the money spent on some software and technology.
What do I do next?
If eligible, it is usually possible to claim R&D tax relief for your two most recent completed accounting periods. Put simply, this means that, if you’re currently in your 2017 accounting period, your R&D expenditure and tax credits for 2015 and 2016 can be considered. The tax credits are calculated based on how much you spent on R&D within that accounting period and any qualifying expenditure is then identified and enhanced by the relevant rate, providing your ‘enhanced expenditure’. This is then deducted from your taxable profits, leading to a corporation tax reduction if you were profitable in that accounting period, a cash credit if you made a loss, or even a combination of the two.
Phebys – Accountants in Cambridgeshire
If you are looking to find out if your business is eligible to claim R&D tax credits, or want help in claiming them if it is, it will always help, in the first instance, to consult an accountant. Here at Phebys Chartered Certified Accountants, we are able to provide professional help and advice on this matter. Simply call us on 01480 896267, or email firstname.lastname@example.org, and we will be happy to discuss your options with you.