According to HMRC, over the last year, more than 50,000 small businesses made Research and Development tax credit claims. Overall, the tax relief came to a total of around £6 billion, half of which was claimed by small companies.
R&D tax relief allows for small and medium sized enterprises (SMEs) to deduct an extra 130% of their qualifying costs from their yearly profit, in addition to the normal 100% deduction. The total deduction is therefore 230%.
Alternatively, if an SME has surplus tax losses, they can be forfeited to give a tax credit at a rate of 14.5%.
To qualify as an SME, a company must have less than 500 employees and a turnover of less than €100 million or a balance sheet less than €86 million.
A key requirement, to be eligible for the relief, is that the expenditure should be incurred as part of a project. The project must seek an advance in science or technology, relating to that specific company, whilst seeking to overcome an uncertainty.
Even if the project is unsuccessful a company must:
- Show how they tried to solve the uncertainty (research, testing and analysis)
- Explain why a professional could not easily work out the issue (this can be done by showing how other attempts to find a solution had failed)
Claims for a proportion of the overall cost of staff working on the project can be made, together with 65% of relevant payments made to agencies who provided staff. Utility costs and materials may also be included.
Businesses who wish to make an R&D claim can do so, following the submission of a company tax return to HMRC. Once the tax return is submitted there is the option to ‘support your claim’ which provides all the information which is required, along with explaining the calculations process.
At STS (Europe) we are on hand to help your company complete your Research and Development claims. We will assist in the computations of the tax credit, along with filing the amended returns where necessary.
Contact us today for an initial consultation on 01704 891676 or get in touch via our contact page.