Research and Development (R&D) tax relief is a form of Corporation Tax (CT) tax relief. It is a tax incentive that is designed to help companies who are willing to take risks by investing in new processes, products and services to become more competitive and more attractive to investors. R and D tax relief is beneficial for any business that wants to expand and develop, but how do you find out if you are eligible to receive the credit?
Who is eligible for R&D tax relief?
Any business can be eligible to receive R&D tax relief – it isn’t solely restricted to software and IT companies. Most businesses, including medicine, science, manufacturing, engineering, gaming, and even architectural firms are able to invest in the development of technology in order to improve business processes and efficiency; however, R&D tax relief can only be claimed if your business is liable for CT.
The size or stage of your business doesn’t affect your business’s eligibility either. Small, medium, or large existing businesses and start-ups alike are all eligible for the incentive. The only part of the incentive that is influenced by the size of your company is the way you apply. Small or medium-sized enterprises apply using the SME Scheme, while large companies use the Large Company Scheme.
What projects can be claimed as R&D?
In order for your company to claim a project under R&D tax relief, that project must in some way be undertaken to achieve an advancement in knowledge or capability in a field of science or technology. The project must aim to resolve scientific or technological uncertainty, rather than simply investing in advancements of the company’s own state of knowledge or capability. Further, the project must be relevant to your specific trade or industry, and your company must solely own any of the intellectual property that may arise from the project itself.
Which project costs are eligible to be claimed?
Once you’ve established that your company’s project is eligible for R&D tax credit, you’ll be able to claim tax relief on revenue and expenditure in the following areas :
• Employee costs
• Staff providers
• Payments to clinical trial volunteers
• Utilities, excluding telecommunications and data costs
• Subcontracted R&D expenditure
• Capital expenditure
How to claim R&D tax relief?
Once you’ve determined that your project is eligible, you are able to make a claim through your CT return or amended return, and you can make your claim up until 2 years after the end of the relevant CT accounting period. Simply check off box 99 for small or medium businesses, or box 100 for large businesses on your CT return. You’ll then need to enter the enhanced expenditure in box 101, along with adding the enhanced figure to your calculations of profit (box 3) or loss (box 122) for the same time period.
You can learn more about how to complete and file your Company Tax Return here.
The final step : receiving your credit
Once you’ve properly claimed your R&D tax relief, the next step is receiving it. By choosing to claim relief, your business’s profit chargeable to CT will be reduced for the relevant accounting period. Alternatively, you can choose to receive tax credits instead of opting for the enhanced relief option.
For more information about R&D tax relief, to find out if you are eligible, please consult our R&D tax experts at Swanson Reed today.