What are R&D tax credits?

by Carter Toni

The research and development (R&D) tax credit is an incentive offered by the government to encourage innovation by UK companies. Businesses can use these funds to pay for R&D, hire new employees, and eventually expand. 

What are R&D tax credits?

Companies can get tax relief for R&D expenditures if they develop or enhance products, processes, or services. To receive a cash payment or lower Corporation Tax, you can claim an R&D tax credit if you’re spending money on innovation. Research and development are found in every industry, which means that there is scope for identifying them. The R&D tax relief can be claimed for the last two financial years if you are claiming it for the first time. 

If you are looking for R & D Tax Relief Advice, you have come to the right place!! 

There are fewer than 5% of companies that qualify for R&D tax relief that claim it. 

Below are a few tips: 

1. White coats aren’t the only ones who use it 

Among businesses, there is a widespread misconception that this tax relief can only be obtained by high-tech companies and companies conducting ground-breaking scientific research. The truth is very different. Businesses from all sectors claim tax relief for research and development. 

2. Determine if you qualify 

There are no specific examples of specific industries provided by the guidelines that determine what qualifies for tax relief for R&D. A claim for innovation must demonstrate that an uncertainty in the project has been overcome in order to achieve something innovative. 

3. We do this on a daily basis. 

Clients often state this to me when we are discussing R&D tax relief and overcoming problems. The company can still claim R&D tax relief despite the fact that this won’t prevent them from doing so. 

4. Include as many technical details as possible 

It is important to provide HMRC with as much information about the project as possible when you make an R&D claim.

A technical report demonstrating the company’s R&D activities must be submitted to HMRC to support the claim. Here is a sampling of the work the company completed in the past year, rather than a comprehensive list. As a result, HMRC are more likely to accept the claim if more information is provided. 

5. Determine what costs should be claimed 

According to HMRC, there are some costs that are eligible for R&D tax relief and others that are not. For HMRC, claiming a cost that isn’t eligible for the relief, such as rent, can significantly delay research and development. So, you would want to ensure you are claiming the most possible costs and understand what you can claim. 

6. Don’t just claim what you do now 

Corporation Tax accounting periods are used to determine R&D tax relief claims. So, an R&D claim that wasn’t considered earlier can be submitted as an amended tax return. Using the year ends of 2017 and 2018 may yield a tax refund if your next year-end is 31 December 2019. 

7. You can exchange losses for cash 

Often, the R&D claim results in a tax loss. A 14.5% cash credit can be obtained for this loss or it can be transferred to future profits. Despite the fact that the rate is lower than the current Corporate Tax rate, the company will receive cash now, which they can invest back into their business. 

8. Consult an expert for R&D tax relief advice 

By using an expert in R&D claims who can make sure that all the qualifying criteria have been met, you will ensure that the claim is optimised and HMRC will be reassured that it has been handled appropriately. This is an area where we can provide guidance and assistance. If you qualify for R&D tax relief, we would be glad to have a no-obligation conversation with you.

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