Many companies are still missing out on valuable tax breaks for expenditure on research and development (R&D). Revenue and Customs (HMRC) have recently updated their guidance on claiming R&D tax credit relief and have reminded companies that it is possible to obtain advance assurance that the R&D activities are eligible to make a claim.
If you are a Small or Medium Enterprise (SME), broadly with fewer than 500 full-time employees and either an annual turnover below 100 million euros or a balance sheet total under 86 million euros, then the tax relief is 230% of the amount spent on R&D. So if your company spent £100,000 on R&D then the profits would be reduced by a further £130,000.
In many cases, this enhanced deduction will create or increase a loss which can be set off against other profits or carried forward against future profits. However, it is also possible to obtain “cash back” from HMRC at the rate of 14.5%. So if the £130,000 tax relief above has the effect of turning a £50,000 profit into a £80,000 loss then HMRC would refund £11,600 in tax to the company rather than have to wait until future profits are made.
In order to make a claim for R&D tax relief, the R&D project must seek to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty. Contact us if you think that some of the work being carried out by your company’s technical staff might qualify as R&D and we can help you make a claim for this generous tax relief.