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R & D tax credits

For tax purposes, when a company undertakes a project that seeks to achieve an advancement in overall knowledge or capability in a field of science or technology, it is involved in R&D. The R&D scheme enables the company to either reduce its corporation tax liability, get a tax refund on previously paid tax, or, if the company is loss-making, they could receive a tax credit byproving that theyhave incurred costs on qualifying R&D.

There are primarily two types of R&D Relief based on your company size and whether or not your project has been sub-contracted to you.

• Small and Medium Sized Enterprise (SME) R&D Relief

  If you are an SME, i.e., a small or a medium-sized enterprise, with less than 500 employees and a turnover of a maximum of €100m or a balance sheet total of less than €86m, you can claim the SME R&D Relief.

  What it offers? This relief allows a company to do the following:

  • Deduct 130% of their qualifying costs from their yearly profit over and above the normal 100% deduction, making a total of 230% deduction of their qualifying costs.
  • Claim a tax credit if the company is running in losses, worth a maximum of 14.5% of the surrenderable loss
• Research and Development Expenditure Credit

  If you are a large company and want to claim an R&D relief, then this is the relief for you. It can also be claimed by SMEs and large companies, sub-contracted to do the R&D work by a larger company.

  What it offers? The RDEC offers you a tax credit for 11% of your qualifying costs on the R&D project.

As mentioned earlier, if you are an SME, with less than 500 employees and a turnover of a maximum of €100m or a balance sheet total of a maximum of €86m, you can claim the SME R&D Relief. It needs to be noted that you need to consider the figures of linked and partner companies while calculating if you are an SME.

• Linked Company: Your Company is linked if it holds over 50% of the voting right in any other company or vice versa. In such a case, the staff number, the balance sheet, and turnover values should be included in your total.
• Partner Companies: A company is your partner company if it holds over 25% of your company’s voting rights or capital or vice versa. In such a case, the proportion of staff, turnover and balance sheet figures to be included in your total depends on the percentage of voting rights and capital that is shared between the companies.

Whatever the size of your business, if you are creating new products, processes or services – or modifying existing ones – there is a good chance you could be carrying out R&D. R&D can take place in any sector. It occurs in everything from food-processing to software development, construction to healthcare.

While submitting a corporation tax return, a business must check (put ‘X’) for box 99 which is for SMEs, and the improved expenditure in box 101. However, DNS Accountants recommend that businesses should interact with members from their learned and experienced team to seek guidance and advice on making a claim. This will help the businesses to make certain that every section of the define criteria is met, and the actual spending amount corresponding to R&D can be claimed back

Businesses will be required to notify HM Revenue and Customs (HMRC) and explain them the reason for a particular R&D activity to qualify for a tax relief. Usually, there is a time range within which a business must make sure that they have filed for a relief – this period is 2 years subsequent to the end of the tax return accounting period. If a business thinks that it qualifies for a R&D tax claim, it is imperative to produce adequate records of project in case HMRC demands for them. By doing so, businesses can make sure that they have applied for the tax relief and are likely to qualify for the claim