An article by FD Works
Is Your Business Eligible for R&D Tax Credits?
As the name suggests R&D Tax Credits are a government incentive to encourage companies across the UK to invest in research and development.
- On average UK SME’s are saving £46,000 annually
- Collectively, SME’s claimed over £2bn in the last tax year
- The scheme has been in existence for 17 years
In this article, we’ll cover scheme benefits, business eligibility and qualifying costs.
What Are the Benefits of R&D Tax Credits?
With R&D Tax Credits the initial cash benefit can help ease the pressure on working capital requirements.
Beyond this, the tax relief works in different ways depending on your business:
For profitable SMEs tax relief for research and development is delivered in the form of an enhanced deduction from taxable profits. This is applied at a rate of 130% for qualifying expenditure.
In contrast, loss making SMEs can surrender all or part of their loss to HMRC for a 14.5% repayable tax credit.
Who Is Eligible for R&D Tax Credits?
If you invest in developing products, processes or services then you may be eligible for R&D tax relief.
However, to be eligible you must:
- Be a UK Limited Company and subject to Corporation Tax
- Have carried out research and development activities
- Have less than 500 employees
- Have an annual turnover under €100m
- Have a balance sheet under €86m
What Costs Qualify for R&D Tax Credits?
It’s possible to claim research and development tax credits for day-to-day operational costs (classed as revenue expenditure). This can include staffing costs, software and consumables.
However, it isn’t usually possible to claim tax credits for capital expenditure costs i.e. those associated with fixed assets such as land and buildings.
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