Making Business Innovation Pay – Does your business qualify for research and Development tax relief?
If you own a Small or Medium sized company have you considered making a “Research & Development” (R&D) claim to help reduce your corporation tax liability or potentially generate a cash tax refund? If not, then you should because these companies can qualify for tax relief of up to 225% on R&D expenditure. R&D expenditure is simply your business’s ordinary overheads, such as wages and utilities, consumed whilst innovating your products and services in a scientific or technological way.
It is an often held misconception that R&D claims can only be made for the development of brand new products in scientific or computer industries. However there is wide ranging scope to make a claim not only where new products have been developed, but also where existing ones have been improved in innovative ways such as making them smaller, faster , lighter, stronger and so on. A wide range of industries can qualify including food and drink where the development of new, innovative recipes can also attract tax relief, to the construction trade with new building methodologies. Many companies seek to protect their development ideas through the use of copyrights but too few are then going on to make the association that an R&D claim can also be made. If you’ve got something that’s worth copyrighting then there is a good chance you’ve got an R&D claim.
The relief comes by way of increasing your R&D expenses by 225% for tax purposes. This means for each £100 spent, your company could have its taxable profits reduced by £225. If your company has made a loss rather than a profit, typical in its early years of trading, you can choose to receive your tax relief by way cash sum paid to you by HMRC.
The continued relaxing of the rules over R&D claims reflects the Treasury’s enthusiasm for helping small businesses who think and act creatively in what they do . In the latest changes the requirement for a minimum spend of £10,000 before an R&D claim could be made was abolished, along with the previous rule that cash refunds were limited to your total PAYE and NIC for the period of the claim.
There are however time limits in making a claim. Any business owners who feel they may be able to reduce their tax burden through an R&D claim are therefore encouraged to seek advice from their accountant as soon as possible.