How Research and Development tax reliefs can save you money

By | 18 June 2018
All limited companies, foreign companies with UK branches and community and sports groups have to pay Corportation Tax on profits here in the UK. And a knowledgeable accountant, such as those within our team here at Hillier Hopkins, could help ensure you pay the right amount. 

However, you may be pleased to hear that you could make a claim for Research and Development (R&D) relief and decrease your payments if your company invests in scientific or technological advancement. 

What are R&D tax credits? And who can get the relief?

In 2000, the government introduced its Research and Development (R&D) Scheme, a Corporation Tax relief which encourages scientific and technological innovation within the United Kingdom. This was soon followed by the Research and Development Expenditure Credit (RDEC) scheme in the Finance Act 2013, which sees a cash payment or other duties for companies with no Corporation Tax liability. 

To qualify for these reliefs, a company must carry out research and development work in the science or technology industry. For example, you may be able to claim if you work on new construction techniques, software development, or engineering design. 

How much is the research and development tax relief?

The level of credit received depends on factors such as the size of a business, but can be up to 33p for every £1 of qualifying expenditure. 

Typical qualifying expenditures include: 
• Staff salaries
• Staff pension contributions 
• Employing subcontractors or freelancers
• Materials and consumables 
• Certain software or tools 

Please note: You can claim both a grant and R&S tax credit, however this may impact the level of relief you receive. 

The R&D scheme does not cover the preparing and registering of patents. However, the Patent Box provides benefits to companies who own or exclusively license-in patents, and have undertaken qualifying activity.

Benefiting from the Patent Box is possible if these patents are granted by the UK Intellectual Property Office, European Patent Office, or many countries in the European Economic Area. 

How to apply for R&D tax reliefs 

You may be eligible for R&D tax credits if you are an SME with less than 500 members of staff and turnover less than the sterling equivalent of €100m or have a balance sheet total of under €86m.

In order to benefit from reduced Corporation Tax rates, you must make an election in the computations accompanying your Company Tax Return or separately in writing. This must be made within two years of the end of the accounting period in which the profits and income in question arose. 

Alternatively, make the process as simple and fuss-free as possible by enlisting the reliable accounting and tax services of an expert. Our friendly and knowledgeable team here at Hiller Hopkins can advise on whether you're eligible for this relief, as well as help you apply. 

Get in touch to learn more about our accounting and tax services. Call 0330 024 3200 today. 
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