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You may be able to claim Relief of up to 43.7% on every £1 qualifying cost.
The Research and Development (R&D) Tax Credit scheme is an initiative by the UK Government where the incentive is designed to reward small and medium sized UK enterprises for investing in innovation and R&D. Companies can reduce their tax bill or claim payable cash credits as a proportion of their R&D expenditure.
They are a valuable source of cash for businesses to invest in developing their research and development activities, new staff recruitment and ultimate growth of the enterprises. R&D tax credits are considered to be the biggest single funding mechanism provided by Government for investment in business.
If you are an SME you could receive a tax relief of up to 43.7p per £1 spent on qualifying R&D expenditure. If the company is in losses, you could claim a cash grant of up to 33.35p per £1 spent on qualifying R&D expenditure.
Consider an engineering consulting company with 2 employees (including director), with a profit of £75,000. The company’s corporation tax liability (@19%) payable before the R&D claim is £14,250.
Out of its total expenses, business incurred £25,000 that qualified as R&D expenditure eligible for the Small or medium sized enterprise (SME) R&D Tax Relief. Under the SME relief the qualifying R&D expenditure is enhanced by 230% and the relief works as follows:
|Profit before R&D tax relief||£75,000|
|Deduct R&D Enhanced expenditure (£25,000 x 230% = £57,500) (Note: £25,000 was already deducted from the company’s profits).||(£32,000)|
|Revised Profits for tax year 31st December 2019||£43,000|
|Corporation Tax Payable (£43,000 x 19%)||£8,170|
The company is able to save an additional £6,080 in Corporation Tax and received a relief of 43.7 pence per £1 of expenditure on R&D.
If the company was loss making company, it could surrender the loss to HMRC in exchange of 14.5% credit against the total enhanced expenditure. This means company could receive a cash grant of £8,337, which is equal to 33p per £1 of R&D expenditure.
With DNS, you just have to complete a short online application form, and you’re done! Our limited company accountants are passionate about helping you with tailored advice on being tax-efficient and growing your business.
As per the guidance provided by HMRC, the project that qualifies for R&D should be able to demonstrate that it:
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