The Research and Development (R&D) tax credit is designed to encourage innovation and increase expenditure on R&D activities by companies operating in the UK.
It is one of the UK Government’s top incentives for investment in R&D, allowing companies to reclaim up to 33.35% of their R&D expenditure as a reduction in corporation tax or as a cash repayment.
The latest UK government research data shows, only a small percentage of UK businesses are currently taking advantage of the Research and Development (R&D) tax reliefs provided by the UK government.
Too many companies do not understand it, and even many Chinese companies have never heard of these incentives.
If you are considering applying, this article will ensure any concerns or questions you may have.
To take advantage of this special government policy, first, you are a UK limited company and you have started a project to develop a product, service or process and you are eligible for the R&D tax credit.
Secondly, your company can be located in any industry, at J&P Accountants we help companies in every industry, but the core motivation of your project must be the pursuit of scientific, technological advancement. This advancement must span the entire industry, not just within your business.
It’s worth noting that in order to qualify for the R&D tax credit, your project must address unresolved issues within the industry. Projects launched for innovation are often fraught with uncertainty, so the R&D tax credit you receive can mitigate some of the expense and risk associated with it.
Here are two available R&D tax credit programs for companies of all sizes.
SME (Small and Medium Enterprise): If you are a for-profit company, the SME R&D Tax Credit Scheme allows you to further deduct 130% of your eligible expenses from your annual profits. If you are a loss-making company, you can also refund your losses and receive a 14.5% tax credit due.
Large Business: If your business meets both of the above requirements, but your business exceeds the number of employees, annual revenue specifications set by the SME (Small and Medium Enterprise), you will be considered a large business. If this is the case, you can apply for the RDEC (R&D Expenditure Credit) scheme.
RDEC: Research and Development Expenditure Credit Program is a tax credit whose value rose to 13% in April 2020. This amount is subject to tax.
Both of the above programs can help subsidize many expenses, including:
Staff costs, 65% of subcontractor costs, consumables, etc.
You could also visit the GOV.UK to check more details: https://www.gov.uk/guidance/corporation-tax-research-and-development-rd-relief
When you claim the R&D tax credit, you need to be able to demonstrate the validity of the question and the uncertainty in the field. You will need to provide background information on the industry professional leading the project, identify the difficulty of solving the problem, and how other past attempts have failed.
You will need to demonstrate research, testing and analysis in your approach to overcoming it. However, if there is currently limited physical evidence, you will need to provide a dynamic account of the professionals leading the project, including their background, previous work, and how their experience makes them suitable for claiming the uncertainty of the project.
If you find yourself in a position where you can present a trove of evidence like this, you can go a long way in claiming the R&D tax credit.
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