What happens if I want to start taking advantage of R&D tax credits?

Posted on: 14/10/2019

In 2017/18 nearly 40,000 claims were made for Research and Development (R&D) tax credits in the UK, almost double the amount of the previous year.

Businesses both large and small benefited from £3.5 billion in tax relief from the often-neglected tax credit, which helped contribute towards £24.9 billion of R&D expenditure across the nation.

However, many more businesses are potentially missing out – as there is a common misconception among the business community that only the very largest firms or most innovative projects can benefit from the relief.

SME R&D relief

In reality, many smaller businesses can benefit from R&D tax credits too, as there is more than one type of tax relief available.

Small and medium-sized enterprise (SME) R&D Relief, which is available to businesses with fewer than 500 members of staff or a turnover below £87 million, can enable small businesses to deduct an extra 130 per cent of their qualifying R&D costs from their yearly profit, as well as the normal 100 per cent deduction, to make a total 230 per cent deduction – which equates to an additional 24.7p for every £1 spent on R&D. Also, where the R&D claim results in a loss, the company can claim a cash payable Tax Credit of 14.5 per cent of the R&D element of the loss.

However, businesses that want to take advantage of this need to meet certain eligibility criteria.

Determining eligibility

In order for a project to be eligible for R&D relief, it must have involved a search for an advance in science and technology or attempted to overcome uncertainty using a method or procedure which couldn’t be easily worked out by a professional in the field.

This can cover a wide range of innovations and procedures conducted during the R&D process.

Naturally, the rules surrounding R&D tax credits are complex and small businesses may find the criteria governing what is and is not eligible confusing. With this in mind, it is always wise for firms to seek specialist advice.

At Thompson Wright, we have significant experience in advising businesses on these kinds of tax reliefs – and we want to help you.

To find out more, contact our expert team today.