What is R&D Tax Relief and R&D Tax Credit?
Companies undertaking research and development in the field of science and technology are rewarded by the UK government in the form of R&D Tax Relief or R and D Tax Credits. HMRC enables Corporation Tax liable companies seeking innovation to reduce company’s tax bill by claiming R&D Tax Relief or reclaim a certain amount of their investment on qualifying R&D projects by claiming for R and D Tax credits.
How R&D Tax Relief or R and D Tax Credit Benefit Businesses?
R&D Tax Relief is valuable consideration for UK-based businesses seeking innovation. This blog tends to explore the benefits of making R&D claims for R and D Tax Credits or R&D Tax Relief.
Research and development play a very significant role in the UK’s economy. By carrying out research and contributing to the evolvement in the scientific and technical domains keep you ahead in the industry. The UK’s government, taking valuable contributions to the economy into account, rewards businesses with R&D Tax relief by reducing tax of the companies liable to corporation tax or renders payable R and D tax credits.
Available to various domains and sizes!
R&D claims are not only limited to a certain sector but it inculcates a vast range of projects from different sectors which fulfill prerequisites of R&D claim unknowingly. Moreover, R&D claims are not even confined to large companies investing in the fields of science and technology, rather R&D Claims are available to Small and Medium-Sized Enterprises as well as large companies.
A major benefit of the R&D Tax Relief is that any business working in any domain or industry is encouraged to apply without any limit of R&D expenditure, if:
- UK based
- Liable to Corporation Tax
- Conducting qualifying R&D operations
R&D Claims are also Beneficial for the Loss-making Companies!
Many businesses are unaware of the fact that loss-making companies are also eligible to apply for R&D Tax Relief or R and D Tax Credits. Moreover, R&D tax relief and R and D Tax Credit schemes are very lenient for Loss-making companies, which helps them to grow by reducing their tax bills or receiving their credit reinvested in buying software or services.
Loss-making companies can submit their R&D Claim applications of R and D Tax Credits or R&D Tax Relief to HMRC. The Amount of R&D Tax relied or credits a company receives depends on the size of the company:
- Loss-making SMEs can claim up to 14.5% and 33% of qualifying R&D expenditure
- Loss-making larger companies claim for almost 9.7% of their eligible R&D expenditure.
R&D Qualifying Cost Covers a Wide Range of your expenditure!
Qualifying expenditure for R&D claims covers a wide range of your expenditure. It roughly includes all the expenditure which is directly linked with R and D activity. You are required to calculate it very carefully to include all your R and D qualifying costs. Following eight kinds of expenditure falls under qualifying cost for R&D claim:
1- Staff costs: Amount paid directly to your staff and employees
2- Cost of the project-related software license
3- Cost of Subcontractor’s involved R and D project
4- Cost of external staff and workers
5- Cost of equipment and material required for your R and D project
6- Developing, manufacturing, and independent research cost
8- Cost of volunteers for the research
Let’s You Claim Significant Amount of Qualifying Expenditure
Businesses can reclaim a significant amount of their qualifying R&D expenditure.
R&D Tax Relief allows companies with lesser than 500 employee, £100million turnover and £86million gross assets to deduct an extra 130% of their qualifying expenditure from their annual profit, along with the normal 100% deduction, to make a total 230% deduction.
R and D Tax credits allow the company to claim up to 33% of your costs.
- Large company:
R&D Tax Relief allows large companies with more than 500 employees, £100million turnover, and £86million gross assets can allow the company an enhanced deduction of 30% of its qualifying expenditure on R and D, in addition to the 100% deduction.
R and D Tax credits allow large companies to reclaim 13% of their qualifying costs.
Reclaim & Reinvest!
As it was just discussed that R&D Tax Relief or R and D Tax Credits cover a wide range of your project costs, it provides you with an opportunity to reinvest the incentives you receive to stimulate growth. If you apply for R&D Tax Relief your tax will be reduced and save you a significant amount to reinvest into your project. As R and D projects usually don’t pay off very soon, it takes time to develop new ideas and to create some new service or make some new better invention so it is better to make R&D Claim. You can invest money in buying more services and staff for your further projects.