Anyone who thinks the UK is lagging behind its neighbours in the East when it comes to technological innovation, might be surprised to learn how much British businesses – and SME’s particularly – are claiming in R&D tax credits.
Research and development (R&D) tax credits are a valuable government tax relief that rewards UK companies for investing in innovation.
Latest statistics from HMRC show a 22 percent increase in the number of SME claims over the past year, with claims totalling £905 million in 2015 and 2016.
It is important to remember that R&D tax relief is potentially available to companies working across all disciplines of engineering, as well traditional academic sciences and software development. For these purposes, technology is just the application of scientific principles in a commercial setting. So a company that creates innovative products using Computer Aided Design, or develops second generation products, or innovative manufacturing equipment, carries out prototyping, or develops processes to meet increasing regulatory requirements might be eligible.
To qualify for R&D relief, work must:
- Be part of a specific project to make an advance in science or technology. It can’t be an advance within a social science or a theoretical field.
- The project must relate to your company’s trade – either an existing one, or one that you intend to start up based on the results of your R&D.
To get R&D relief you will need to illustrate how, throughout your project, you:
- Sought to make an advance in a field of science and technology
- Had to, or tried to, overcome uncertainty via research, testing or analysis
- Enlisted professionals in the field who had to overcome obstacles
The type of R&D relief you can claim depends on the size and turnover of your company and whether the project in question has been subcontracted to you or not.
But the headline news is that SME R&D relief allows companies to:
- Deduct an extra 130 percent of their qualifying costs from their yearly profit, on top of the usual 100 percent deduction
- Claim a tax credit if the company is loss making, worth up to 14.5 percent of the surrenderable loss
As you can see, R&D relief can have a big impact on a company’s bottom line and it also tends to be a relief that qualifying firms can claim over successive years. If you feel you may qualify, we recommend that you talk to us at Morgan Hemp so we can guide you through the process.