If your company is involved in research and development, you could be benefiting from R&D tax relief, which offers a reduction in your company’s tax bill along with the benefits of a 10% corporation tax rate.
Who is eligible?
Companies can claim relief if they invest money in an R&D project which seeks to achieve an advance in science or technology, or is involved with qualifying indirect activities related to the project.
The project must relate either to your company’s existing trade, or one that you intend to start up based on the results of the R&D.
What costs qualify for relief?
Revenue expenditure: If you qualify for relief, you can claim on revenue involved in the day to day running costs of your business. This includes (amongst others) employee costs, materials, utilities and software. Where R&D activities are not fully engaged, a proportion of the costs can be claimed for.
Capital expenditure: capital allowances may be available when you are involved in R&D and spend money on capital assets. Where allowances are due, a 100% allowance is given in the same year of the expenditure.
Subcontracted expenditure: For SME’s using subcontractors, you can claim back 65% of your spend on R&D activities. This also applies to externally provided workers. Where the company and the sub-contractor or supplier are connected, special rules apply.
What are the available reliefs?
SME’s may claim a deduction equal to an additional 130% of their qualifying R&D expenditure – that’s a total deduction of 230% of actual expenditure. If you just claim relief, your chargeable profit for corporation tax for the accounting period will be reduced. As an SME, you can choose to convert some or all of your tax relief into payable tax credits instead.
What about patent box relief?
Companies have the opportunity to reduce their corporation tax rate from 20% to 10% on profits relating to qualifying patent rights. While currently only applying to UK and European patents, those that are still pending can qualify for relief once the patent is granted, for the previous 6 years. Equally, products that include a patented part – even if the majority of the product is not patented –can still claim for relief.
How to claim?
You can claim R&D tax relief as part of your company tax return, or amended return. There is a time limit of 2 years to claim after the end of the relevant accounting period.
For more information on R&D tax relief, and to confirm whether your business qualifies, get in touch with our team for a friendly, no-obligation discussion – we’d be happy to offer advice and support.
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