The November 2017 Paradise Papers provided some juicy content, but in essence they revealed what we already knew: real life Rock Stars don’t like paying too much tax. Thankfully for small business owners, there are easier and less ethically controversial ways to run your enterprise in a tax efficient way without the need to invest in Lithuanian shopping centres or offshore your businesses accounting jurisdiction! In this article we look at Research and Development Tax Relief.
THIS ARTICLE IS PROVIDED AS A HIGH LEVEL OVERVIEW OF R&D TAX RELIEF IN THE UK. PLEASE DO NOT MAKE DECISIONS BASED ON THE CONTENT OF THIS ARTICLE WITHOUT FIRST SPEAKING TO AN EXPERT IN THE FIELD. FOR A FREE INFORMAL CONSULTATION TO FIND OUT IF YOUR FIRM QUALIFIES PLEASE GET IN TOUCH VIA THE DETAILS AT THE END OF THIS ARTICLE.
Research and Development Tax Relief: What is it?
Research and Development Tax Relief was introduced by the Government in the year 2000 as a mechanism to encourage small and medium sized UK companies to invest in innovation. In an increasingly fast moving global marketplace and with increasing competition from China – and beyond – this is a sound idea, a great way to incentivise UK firms to invest in developing a competitive edge.
Is it relevant to your business?
In our experience, many people have not yet taken advantage of this initiative due to a misunderstanding of its relevance to their business. So let’s start with some quick definitions to see if it is worth you reading any further:
Scale – For the purposes a R&D Tax Relief a company qualified as small or medium if it has fewer than 500 staff and either its turnover is less than 100m euros or it has gross assets of less than 86m euros.
Qualifying Business Sectors: It is a common misconception that the relief is only available to companies who are working in new technologies e.g. have employees in white coats working with test tubes, Bunsen burners or quadratic equations. The reality is that the relief is available to any UK based company which spends money on being innovative in their field and can often relate to the development of new software to support and enhance the delivery of a company’s core product or service in a new and innovative way.
The range in both the scale and nature of businesses qualifying is extremely diverse and to date nearly 40,000 small and medium sized companies have taken advantage of the relief with over £1billion in additional tax relief claimed.
Retrospective Benefits – If you qualify but have already made the investment then you have probably not yet missed the boat
Companies can make a claim for accounting periods which ended within the previous two years which means that, when first making a claim, a company can usually claim tax refunds for two accounting periods.
This scheme seeks to encourage innovation by de-risking some of the investment, so another interesting detail to be aware of is that it is not always necessary for the R&D project to be or have been successful or complete in order to make a claim.
How It Works
Companies which invest in new or existing processes, products or services are able to claim additional tax relief equal to 130% of the qualifying expenditure. Based on a profitable company paying corporation tax at 20% this would result in a tax saving of 26p for every £1 on top of the “normal” 20p tax saving the expenditure would generate. This means that the Government is contributing 46p towards every £1 of your R&D expenditure.
In the event that the Company is early stage, or loss-making, the Company can surrender its tax relief in return for a tax refund from HMRC meaning that for every £1 spent the Company can receive 33.3p back.
It normally takes between 4 and 8 weeks for HMRC to process the R&D relief claim meaning that tax refunds are usually received within 2 months of making the claim.
Do You Qualify?
If you can answer “Yes” to either of the two simple questions there is a very good chance you will qualify for the relief.
· Are you spending money developing new products, processes or products or improving existing ones?
· Do you employ staff to work on projects which advance the knowledge or overcome uncertainties within your trade?
What Expenditure Qualifies?
Examples of the types of expenditure which will qualify for R&D relief are;
· Staff costs including salaries, National Insurance and pension contributions.
· Expenditure on materials and consumables including utility costs.
· Some types of software expenditure.
· Subcontractor and freelancer costs.
What to do next
To find out more and to see if you qualify, please get in touch and we can arrange for you to speak to a specialist advisor for a 100% free and confidential initial exploratory consultation to find out if you qualify.
Telephone: 077 88 99 6505 Email: [email protected]