R&D Tax Credits for Small Businesses
Research and Development Tax Credits (R&D Tax Credits)
Although the R&D Tax Credits Scheme has been in place since 2000 many businesses are not aware that they are eligible for these tax credits. Currently, £2 billion in tax credits are being claimed every year.
R&D tax credits are a key part of the government’s strategy to support innovation in the UK.
The R&D Tax Credits incentive scheme is essentially designed to encourage innovation and increase business spending on R&D activities for companies operating in the United Kingdom. It’s one of the government’s most rewarding incentives for encouraging investment in research and development and allows up to 33.35% of a company’s R&D spend to be recovered as a cash repayment..
So one might wonder, what is the catch?
Well, there are restrictions which apply to what can be considered ‘Eligible R&D Expenditure’
Firstly, your business needs to be spending a minimum of £20000 on R&D.
Secondly, your business needs to be actively trading and a going concern.
Lastly, your business should not have paid for the R&D expenses using any other government funding.
What are costs can you claim on?
- Expenditure on staff including salaries, employer’s NIC and pension contributions.
- Expenditure on subcontractors and freelancers.
- Expenditure on materials and consumables including heat, light and power that are used up or transformed by the R&D process.
- Expenditure on some types of software.
How Much R&D Tax Relief are you eligible for?
This depends on whether your business is in loss or profit.
If your business in profit, you are eligible for 26%
If your business is in loss, you are eligible for the higher tax credits rate of 33.35%
What is the claims process like?
HMRC processes R&D tax credits. The processing time is only 4 to 6 weeks. The claim can be made via your Company Tax Return (CT600). It is advisable to include an R&D Tax Credits Claim Report to justify the expenses that you are claiming. In either case, you may be contacted by an HMRC agent to verify information in your report or be asked to submit further evidence to support your claims. In some cases, an HMRC agent may need to visit your site to perform further verification checks related to your claim.
How can In2Accounting Help ?
We can assist you with the analysis of your expenditure and calculation of your potential R&D tax credits. We can also submit your Tax Return and R&D Claim. While it is not required, but highly recommended for a successful claim – we will also write your R&D Claim Report detailing your expenditures and their attributes which make them eligible for tax credits.
Learn more about R&D Tax Credits on HMRC Website.