In the current economic climate, companies are increasingly looking for ways to cut their costs. One option, where a business is eligible, is to make a claim for Research & Development (“R & D”) Tax Relief.
- If a company comes within the definition of a small and medium-sized entity (less than 500 employees) and it is profitable, for every £10,000 of eligible R & D expenditure, costs will reduce to £5,400 when the saving in a tax bill is taken into account. This is an effective 46% reduction in your costs.
- On the other hand, if a company is currently loss-making, such that it is not due to pay any Corporation Tax, it can still surrender losses generated by R & D activity and receive a payment from HMRC. The impact is that for every £10,000 of eligible expenditure it will receive £3,335 post the claim, an effective 33.35% reduction in your costs.
- What if R & D activity is funded (including a project with OGIC funding), or the organisation is too big to qualify as a SME? There is separate R & D relief available which will reduce the tax bill (or produce a payment from HMRC) of £880 for every £10,000 spend: an effective reduction of 8.8%. Admittedly not such an impressive cost reduction where a company is not eligible for full SME relief, but this could still be claimed even when R & D is fully funded!
Eligible activities are those attempting to make an advance in science or technology through, for example;
- Extending the overall knowledge or capability within an industry or sector.
- Trying for greater efficiency, less waste, higher performance, increased speed, lower cost or better security.
What is also important is that the potential solution must not be easily ascertainable and that a specialist working in the particular field would find difficult to do.
The R&D Tax Reliefs noted above are for expenditure which is revenue in nature. A company may have also incurred capital expenditure to allow it to carry out R & D activity. Special Research & Development Allowances are also available for these capital costs.
The perceived complexity of the rules may be putting businesses off from making a claim. However, an experienced professional advisor can simplify the process and assist with a claim.
Making a claim will result in staff involved in R & D helping to pay for themselves, for activity they are already involved in, with very little additional work required.
So what is stopping you?
AAB will be hosting and presenting at the forthcoming Oil & Gas Innovation Funding Seminar with OGIC. For more details and to book a place, see details below: