If you own a small business, you may be pleasantly surprised to learn how your company can take advantage of the R&D (Research and Development) tax relief scheme. This relief scheme offers companies 225 percent relief on certain expenditures. Therefore, for every £1,000 spent on a R&D project, the company gets their taxable income reduced by an additional £1,000 over the £1,000 that they originally spent.
Until recently, small companies had to spend at least £10,000 on qualified expenses, but the Chancellor has removed this limit on any expenditures made after the 1st of April, 2012.
How to Claim Research and Development Tax Relief
To claim the R&D relief, you only need to scribble an x in Box 99 of your company’s tax return. In Box 101, you will need to put a number that represents the actual amount that you spent times 225 percent.
Companies are also encouraged to submit documents to HMRC that detail why their projects qualify for the R&D credit and to provide a summary of how they reached the figure that they included in Box 101. Depending upon whether or not your company wants to convert your tax relief into tax credits, you may also have to pop a few different numbers into Boxes 87, 89, and 143 as well as 3 or 122.
Claiming the R&D tax credit is relatively simple, but qualifying for it or ascertaining whether or not you qualify can be difficult for some business owners.
Qualifying for R&D credits
Small businesses who are liable for corporation taxes can apply for relief under the small or medium enterprise (SME) scheme. To qualify, your project must actively attempt to add to the current body of information or to the current capabilities of science and technology. To do this, your project must resolve something that is currently uncertain in either or these fields.
What Constitutes an SME?
An SME must employ less than 500 employees and must meet one of the following two criteria:
- yearly turnover of £100 million or less
- balance sheets that show £86 million or less
Which Projects May Qualify
As indicated above, the projects that qualify for R&D relief are ones that are not just developed for the sole benefit of the developer. Rather, these projects are ones that seek to advance the fields of science and technology.
To this end, companies may wish to describe the technological advances that their project is making when they apply for the credit. Companies may also wish to include information on which scientific uncertainties they were seeking to resolve in their project.
Companies who did not resolve the uncertainty at hand may still claim this credit as long as they can demonstrate how they attempted to solve the uncertainty. Thus, if a company has spent money on various attempts and failures, they can still get relief for those expenses.
If all these guidelines have been met, the company can claim the R&D relief for the following types of expenses:
- staff costs
- project materials
- monies used to compensate clinical trial subjects
- utilities (water, electricity, etc. needed to carry out the R&D)
- subcontracted expenses
- capital expenditures
To claim R&D relief, businesses must address an uncertainty in the field of science or technology. Their project must, on some level, add to those fields. If you are uncertain of whether or not the uncertainy that you are investigating will qualify you for this credit, we would love to help you figure out the next step.