Companies that carry out innovative activities to technically improve products, processes, devices, materials and/or services are able to claim tax relief to reduce their tax bill or, for some loss-making companies, to claim a cash sum.
Research and development (R&D) tax relief allows companies to claim a “super-deduction” for their qualifying R&D expenditure of 225%. This means that for every £100 spent on your R&D activities you can claim a deduction of £225 in your tax return. This reduces the profits on which you pay tax and hence reduces your tax liability.
HM Revenue and Customs are seeking to increase the number of companies that are able to claim the relief. In order to benefit small companies a number of changes have been implemented recently as follows:
- Previously, companies needed to spend a minimum of £10,000 on their qualifying R&D activities in order to make a claim for R&D tax relief. The removal of this restriction means that many smaller companies can now make a claim for the tax relief. For example, a company that spends £8,000 on an innovative project could reduce their corporation tax liability by £2,000.
- Loss making companies claiming tax credits previously found their repayment claims restricted by the level of their PAYE and NIC liabilities. This upper limit predominantly affected small companies with few employees or start-up companies where minimal salaries were extracted, and has now been withdrawn.
R&D claims now represent a real opportunity for small companies to maximize the tax relief available to them. This is achieved by writing a small report for HM Revenue and Customs that outlines the nature of the R&D work undertaken and identifies the related qualifying expenditure. You should also remember the tax benefits of patenting the results of your R&D in the UK.
Crowther Associates Limited has experience of working with small companies to claim R&D tax relief. For further details please see their website www.crowthertax.co.uk. They offer competitive fee structures designed to ensure that any professional costs incurred are not in excess of the tax benefits achieved. For further details or to arrange a free initial assessment, please contact Sara Crowther on 07723 916890.