What is R&D and SME:
These are just abbreviations for words you are probably familiar with:
- R&D stands for Research and Development
- SME stands for Small to Medium sized Enterprise
R&D tax relief allows SME companies to:
- Deduct an extra 130% of qualifying costs from yearly profit as well as the normal 100% deduction making a total of 230% deductions.
- Claim a tax credit if the company is making a loss, this can be worth up to 14.5% of surrender-able loss
Companies making their first R&D claim qualify for ‘Advance Assurance’ which if granted means any claim in the first three accounting periods will be accepted in line with what was agreed.
SME companies who can claim:
If you’re an SME with:
- Less than 500 staff
- Turnover under 100 million
- Balance sheet total under 86 million
If your company has external investors you need to include the figures they provide as this can affect your SME status.
Costs you can claim for R&D:
Employee costs :
- For staff working directly on your R&D project you can claim a proportion of their:
- Class 1 national insurance contributions
- Pension fund contributions
Subcontractor costs :
- You can claim 65% of your relevant costs using a subcontractor for your R&D activities
- You can claim for software license feeds you bought for R&D and a reasonable share pf costs for software partly used in your R&D activities
Consumable items :
- You can claim a relevant proportion of consumable items including materials and utilities.
Costs that can’t be claimed for R&D:
- Production and distribution of goods and services
- Capital expenditure
- Cost of land
- Cost of patents and trademarks
- Rent or rates
How to claim corporate tax relief:
You can make a claim up to two years after the end of the accounting period for that project.
Firstly, you need to enter enhanced expenditure into the ‘full company tax return form (CT600), to calculate this:
- Work out costs directly attributed to R&D
- Reduce subcontractors/external staff provider payments to 65% of original cost
- Add all costs together
- Multiply figure by 130% to get additional deductions to put in the tax computations
- Add this to original R&D expenditure figure to get the enhanced expenditure figure that you can enter on the tax return.
How to support your R&D tax relief claim:
- Provide start and end dates of accounting period in relation to the R&D activity
- Provide 10 digit company unique tax reference number (UTR)
- Provide total amount of tax relief your claiming
- Provide a breakdown of all your qualifying R&D costs
- Provide all unrelieved trading loss for the claim period
Who We Are:
Swanson Reed is one of the U.S.’ largest Specialist R&D tax advisory firms. We manage all facets of the R&D tax credit program, from claim preparation and audit compliance to claim disputes.