If you pay corporation tax you may be entitled to R & D Tax Credits. If your business undertakes any form of research or development which can include internal processes as well as service and product development then the costs incurred in this activity can be offset against Corporation Tax (subject to qualifying conditions, or if you made a trading loss a cash credit can be claimed). Currently up to 225% of your R & D expenditure can be offset against tax and in many cases this results in HMRC returning tax already paid.
Past years expenditure can also be used in the calculation but is limited to two years after the end of the tax year. Qualifying costs can be internal labour costs, some sub contractor coats and some materials and hardware.
However figures show that many SMEs either do not know about this tax credit or just do not claim it. Some misunderstanding includes that you cannot claim for work done for your clients and that you cannot claim for work undertaken by sub-contractors. Neither is accurate, you can claim for work done for clients so long as it meets the R&D qualification criteria and you held the risk as to whether the desired project outcome would be achieved; and you can claim for work that is contracted out within the UK or abroad, again providing that you hold the risk (although only 65% of subcontracted costs are allowed)
If you are the owner of an SME and you want to work out if there may be qualifying R&D being undertaken, look back on the last three years and ask yourself these questions:
- Has the company created any new or enhanced any existing products?
- Has the company undertaken any work to improve processes?
- For service organisations, have any projects been undertaken to improve those services in order to either: reduce costs, win more business or improve service levels.
If your answer to any of the above questions is yes we recommend you talk to one of our specialists to check out whether the company may qualify for R&D tax credits. Contact your local HCBA Advisor or email firstname.lastname@example.org or call 0333 444 8522