Research and development are a key part of many businesses and being able to claim relief can go a long way to help them save money. Whether you’re just starting out or own a well-established company, we can help you to know if you can claim R&D tax relief and what the benefits of doing so are.
We’re offering an R&D claim service on top of the other services we already provide as contractor accountants, so we can guide you through the process from start to end.
What is Research & Development Tax Relief?
Many businesses need to research and develop products, services and processes in order to remain competitive or even just as part of what they offer clients. Because R&D is such a critical element for SMEs, it’s also a risk – business owners may not be one hundred per cent confident that the projects they’re undertaking will pan out the way they want to, for example, which can lead to loss of capital.
Research and development tax relief for SMEs means these business owners don’t have to stress about the outcome of their research and development so much, since some of it can be claimed back. If research and development is something your company does, then you should try to claim the investment back – we can help you do this, so don’t hesitate to get in touch with us to learn more about our tax relief service.
Different Types of Claims You Can Make
There isn’t a one-size-fits-all approach to research and development claims. There are several types of tax relief you can make depending on how big or small your company is and whether the project you’re undertaking has been subcontracted to you.
So, you can get SME R&D relief if you have fewer than 500 employees in your company and if your turnover is below €100 million. You can also get R&D expenditure credit, which is for large companies or for SMEs that have been contracted to do research and development by a large company.
Projects Eligible for R&D Tax Relief
So, how do you know if you qualify for research and development tax relief? Not all companies are allowed to participate in this scheme, but, if you’re an SME, you should be able to claim back some of the investment you made if:
- You employ fewer than 500 people.
- Your turnover is under €100 million (or your balance sheet total is under €86 million).
- You’re a limited company in the UK and subject to corporation tax.
- You undertake R&D activities.
- You have spent money on R&D.
The government doesn’t have exact criteria for determining who qualifies but, if your project aims to advance science or technology, or relates to your trade, you’re very likely to be eligible.
One important thing to note is that, if you’re eligible to claim tax relief on R&D, you can do it even if the project fails. This can remove the pressure or stress of having to succeed no matter what, as the government understands that not every project will have the outcome you desire.
When Can’t You Claim this Tax Relief?
Social science projects don’t qualify for the R&D tax relief. You must also be able to showcase how the research and development work advances science and technology, overcomes uncertainty and can’t be easily figured out by someone in the field. If you can’t do this, you may not be able to claim the relief.
You can also be denied if your research and development investment is subsidised or has received over €7.5 millions of total aid, for example.
You can’t request R&D tax relief if you work on sectors where creativity is the main focus, like movies and television, games, gallery exhibitions, etc.
What Are the Benefits of Claiming R&D Tax Relief?
Claiming research and development tax relief can help businesses to save money, since they get some of their investment back. If you’re interested in claiming this relief, you’ll be pleased to know that one of the benefits it offers is that you may be able to claim up an enhanced reduction in corporation tax or a cash credit of 14.5% of the claim.
As R&D tax relief is tax-free, it encourages innovation too, since it helps businesses to grow and carry on contributing to the economy. You can also use that money to hire new staff or buy new equipment if you require it.
If you qualify for this relief, you can claim every year, meaning you could be saving a lot of cash when it comes to taxes – this can then be invested back into the business, helping you to grow.
According to the UK government, SME research and development relief allows you to deduct an extra 130% of your qualifying costs from your yearly profit and the normal 100% deduction, making it a total of 230% deduction. The government also says that you can claim a tax credit if your company is losing money – this claim is worth up to 14.5% of the “surrenderable loss”.
You can claim costs from the exact date you begin the project until you develop or discover a product or service or stop the project. There are several costs you can claim, such as:
- Staff costs – this refers to salary costs, pension contributions, Class 1 National Insurance Contributions and more.
- Subcontractor costs – if you subcontract the project to someone else, you can claim 65% of the costs of using this third party. This expenditure must not be subsidised, has to be attributed to R&D done on behalf of your company, and more.
- Software – you may be able to claim software licence fees.
- Consumable items – these costs refer to consumable items you use during the project, such as materials.
- Clinical trials volunteers – if your project requires payment to volunteers for clinical tests, then you can claim these back.
You’re not able to claim for things like rent, trademarks or distribution of products. The tax relief is strictly for costs incurred during the project and directly related to it.
It can be tough to figure out what you can claim or not, so why not contact us so we can handle it all for you? We can shoulder the burden by providing expert advice and helping you to navigate this matter.
How Can Gorilla Accounting Help?
We’re here to help with your research and development tax relief claim, so you don’t have to worry about figuring out the best way to go about it. We’ll handle the financial legwork while you can carry on focusing on growing your business.
As limited company accountants, we’ll discuss your particular case with you, since we need to determine early on if you can actually make a claim. Once that’s out of the way, we’ll provide specialist advice on what is considered and R&D project and what you must do to qualify.
We’ll guide you through the application, review your expenses, help you calculate eligible costs, and overall offer support from the start, so that you have a high chance of success. We’ll also help you with your corporation tax return.
A huge advantage of speaking to us about a possible R&D tax relief is that we know what you need to include in your application and know to avoid the most common mistakes in research and development tax relief claims, which can include:
- Not accounting for subsidies
- Missing out on claims for unsuccessful research
- Not identifying all staff costs that can be claimed
- Including costs that don’t qualify, such as normal admin costs
- Claiming for non-consumable items
- And more
Ring us on 0330 107 9676 to speak to a professional accountant who specialises in SMEs and all issues relating to them. We look forward to hearing from you.