Know More About R&D Tax Credits In The UK
Posted on 17th March 2021
Not every business owner in the UK knows that R&D tax credits can transform their business by fuelling growth. For someone not aware of the term, R&D or Research and Development tax credits is an incentive designed by the government for companies in the UK. It is a source of cash for businesses. They can invest the money for research and development and hire new staff to grow their business.
How Does This Tax Credit Work?
Every company is eligible for research and development tax relief if they use the money for processes or services or develop new products. You can also make a tax credit claim if you are planning to use the money for innovation. Generally, business owners receive it as a corporation tax reduction or cash payment. Since this tax credit exists in numerous sectors, identifying it often becomes a challenging task. Another benefit of claiming R&D tax relief is that you can claim the previous two accounting periods when claiming it for the first time.
Companies Who Can Benefit From R&D Tax Incentives
• Limited companies in the UK subject to Corporation Tax.
• Companies that carry out qualifying research and development tasks.
What Do You Mean By Research And Development?
The criteria set by the government for research and development is quite broad. Irrespective of your company's sector or its size, resolving scientific or technological uncertainties are always considered qualifying activities. For example, business owners who are unsure about the success of their project or don’t know how to achieve it, is considered to carry out qualifying R&D. An important part of the research and development definition accepted by the government is that it can qualify even if it is not successful.
Costs Qualifying For R&D Tax Credits
• Staff salaries, pension contributions, reimbursed expenses and employer’s NIC.
• Some types of software
• Freelancers and subcontractors
• Consumables like light, heat or power transformed by the R&D process.
• Payments subjected to clinical trials.
How To Choose The Right R&D Tax Credit For Your Business?
Since there is a wide variety of R&D tax credit incentives, choosing the right one often becomes a daunting task for business owners. What type of incentive you can use for an R&D tax credit claim depends on the size of your company.
• SME – Small and medium-sized enterprises generally have less than 500 staff. A majority of start-ups fall under this category. You can get in touch with a reputable company offering SME R&D tax credits in the UK for further details.
• Large Company – Large companies are those with more than 500 staff. They are not entitled to the SME R&D tax credit incentive.
How To Claim R&D Tax Credits In The UK?
If you own a small or medium-sized enterprise eligible for R&D tax credits in the UK, you have to make a claim through the SME R&D tax incentive. SMEs might have to face some restrictions when accessing the SME incentive due to factors like grants and subcontracting. In such a situation, you have to make a claim through RDEC.
SMEs can always take advantage of R&D tax credits. They can get a lot of money every month, irrespective of their sector. They can re-invest back the money into their business and enhance their profit margin. To ensure maximum value, companies can useR&D tax credits and grant funding together using both incentives. BGS Accounting is one of the few companies you can trust for hassle-free accounting and bookkeeping services.
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