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R&D Tax Credits

For companies that want to push the envelope and change the face of their industry, the R&D tax credit is the perfect opportunity to reinvest in yourself.

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R&D Tax Credits

The R&D tax credit initiative serves as a powerful tool to encourage businesses across the board to reinvest in themselves, driving industry-wide progress and innovation. Particularly for the technology-driven sectors in the UK, R&D tax relief stands as a vital support system, fueling innovation by providing crucial financial support.

Updates to R&D Credits for UK businesses, announced during the Spring Budget 2023, have come into effect since April 2023. These revisions entail a reduction in the tax relief rate for businesses falling under the SME R&D scheme. Conversely, businesses claiming RDEC can now benefit from a more favorable tax relief rate.

How A&T Financial Services Simplifies R&D Tax Credits

  1. Navigating the complexities of R&D tax relief can be daunting, but A&T Financial Services is here to alleviate that stress. Whether you're unsure if your business qualifies or need assistance in understanding the eligibility criteria, we've got you covered.
  2. Determining eligibility requires a thorough review of your business activities, and our expert team can meticulously assess your projects to see if they meet the necessary criteria. We'll work with you to calculate your qualified costs, ensuring you understand the relief you're entitled to.
  3. Beyond R&D tax credits, we offer support in various areas, including VAT returns. By entrusting us with your accountancy needs, you can redirect your focus to driving innovation and advancing technology. Plus, when it comes to correspondence with HMRC or any other tax matters, we'll represent you, providing peace of mind and expert advocacy.

Need help determining if you qualify for R&D tax relief ?

If you'd like to find out more about our R&D tax services or need help calculating your qualified costs, please don't hesitate to get in touch

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How R&D Tax Credits Function

R&D tax credits serve as a means to incentivize companies actively engaged in research, rewarding their contributions to the advancement of their respective industries. Leveraging funds acquired through R&D tax credits enables reinvestment back into your company, facilitating the hiring of staff and acquiring necessary resources to scale operations in line with innovative demands.

These tax credits manifest in various forms depending on your company's size and the applicable scheme, which may include:

  • Small and Medium-Sized Enterprises (SME) Tax Relief: Available to both profitable and loss-making companies.
  • Research and Development Expenditure Credit (RDEC).

Consequently, depending on eligibility, your tax relief may be received through:

  • Cash rebate
  • Corporate tax relief

Regardless of the scheme, R&D tax credits are designed for adaptability. You can apply for relief up to two accounting cycles (24 months) following the conclusion of your R&D activities.

Qualifying Projects for R&D Tax Credits

TThe R&D tax credit presents businesses with a compelling incentive for engaging in research, but identifying if your project meets the criteria can be crucial. Thankfully, the government offers clear guidelines for eligibility.

To qualify, your innovative project must demonstrate scientific or technological advancement and possess tangibility; theoretical endeavors without practical application to existing industries do not qualify for tax relief. To determine eligibility, consider these four key questions.

  • Does my research aim to drive advancements within my industry?
  • Have experts in my field encountered difficulty in solving this specific problem?
  • Was uncertainty surrounding the effectiveness of my proposed solution present prior to my research?
  • Can I outline a clear and reproducible method for resolving this uncertainty?

Qualifying Expenses for R&D Tax Credits

For your project to qualify for the credit, it must meet certain criteria. Assuming it does, what expenses can you include when calculating your benefit? Included Costs:

  • Staffing costs, covering salaries and retirement contributions.
  • Fees for subcontractors involved in the research.
  • Various specialized software.
  • Consumable items necessary for the research.
  • Payments to clinical trial volunteers.
  • Data licenses and cloud computing software (recently added as qualifying expenditure as of 1st April 2023).

However, according to HMRC, the following expenses are unfortunately excluded when determining your relief amount:

  • Production costs of goods and services.
  • All capital expenditures.
  • Infrastructure expenses such as land.
  • Development of trademarks.

Commonly asked questions

What if your project doesn't yield the intended solution? Even if your project doesn't achieve its proposed outcome, as long as the research was conducted in good faith, you're still eligible to claim your expenditures. Additionally, if your business is experiencing losses, you can still benefit from the relief.

What if your UK-based company operates overseas? You can still qualify for R&D relief as long as you fulfill your corporate taxation responsibilities. To clarify, if you're a subcontractor contributing to R&D for a larger firm, chances are you qualify for relief as well.

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Types of credits

There are two primary schemes available for those seeking to leverage R&D tax relief. The first is SME R&D relief, tailored for small to medium businesses. Your business qualifies for SME relief if it meets the following criteria:

  • Less than 500 employees
  • Revenue under €100 million per year
  • Gross assets totaling less than €86 million

Under SME relief, your company can deduct 86% of qualifying costs and receive a standard deduction of 100%, resulting in a combined 186% deduction from your annual profit statement. If your business operates at a loss, you're eligible for a tax credit equivalent to 10% of your surrenderable loss.

For profit-making SMEs, we can further enhance R&D expenditure by an additional 86% to reduce the corporation tax.

For loss-making SMEs, there are several options available:

  • Carrying back to the previous accounting period
  • Carrying forward and offsetting against future profits
  • Surrendering to HMRC in exchange for a tax credit

    • The RDEC operates differently, catering to larger-scale companies. Effective from April 1, 2023, it offers a simple above-the-line tax credit of 20%. While the RDEC benefits larger businesses, the impact of the R&D relief program on small and medium enterprises has been significant, with over 60,000 businesses having benefited from the program over the years. Overall, both schemes offer substantial benefits to businesses engaged in research and development, contributing to innovation and growth across various industries.

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