Research and Development or R&D Tax Credits are a tax incentive put in place by the UK Government designed to reward companies for investing in innovation. R&D tax credits turn out to be a very valuable source of funding for UK companies as they can invest smarter, hire newer staff and thus, maximise their growth. Learn more from trading company accounting.
How does it work?
If your company is spending money on qualifying R&D expenditure, you can make an R&D tax credit claim to receive either a cash payment and/or a reduction against your company’s Corporation Tax liability. Most people wrongly think R&D is limited to new technology. In fact, it exists in every single sector and the scope is huge. If you’re making a claim for the first time, you can typically claim R&D tax relief for your last two completed accounting periods.
Benefits of R&D tax credits
There are several benefits associated with R&D. The most significant and valuable ones of the company are:
- Claiming up to a huge 33p for every £1 spent on allowable R&D expenditure.
- R&D tax credits can wipe out corporation tax and even mean a cash refund.
- Better market value, earnings as well as improved cash flow for the company.
How to claim them?
There are a lot of factors that come into play when a business has an R&D claim. The company can claim R&D tax benefits for the current year as well as the prior tax year if qualifying expenditure has been missed.
In order to acclaim these credits, the best placed individual looking after the company’s finances must evaluate and then document all the research activities undertaken by the firm. This is required so as to establish the costs associated with research projects. Along with the estimation of the finances involved and the money spent on research activities, it is mandatory for the company to produce factual data and records to support the claim. This includes:
- Payroll records of the company
- Project lists of the company
- Project notes
- General ledger expense details associated with the company
- Other documents produced by the company in normal circumstances during the regular business activities such as bank statements
Which type of costs qualifies for claiming the R&D tax credits?
The following types of expenditures can be claimed for as R&D tax credits:
- Employee costs associated with R&D projects. This includes their salaries, NIC, reimbursed expenses as well as pension contributions.
- Money spent on paying freelancers as well as subcontractors associated with the research work.
- Amounts spent on materials as well as consumables during the research activities. This would also include the expenses on light, power, and heat.
- Specialised software that is employed, if any.
- Money spent on clinical trials.
If you think your business has undertaken projects which may qualify for R&D tax credits, then please get in touch with Accounting Inc. We will quickly be able to advise if your company has eligible expenditure. Many companies often complete qualifying R&D projects without realising. Our processes make the R&D claim straight forward. We have a 100% success rate with all client R&D claims. R&D tax credits can be a welcome source of cash or reduction against Corporation Tax for small businesses. Please contact us for further details.