Don’t miss out on R&D tax credits

Did you know that 7,450 UK companies benefited from annual tax credits worth some £790m in 2007/08, based solely on their investment in research and development (R&D)?

Innovation is one of the UK’s prime routes out of recession and the enhanced relief available for qualifying R&D activity is an area well worth close examination by any company undertaking an appreciable element of innovation and creativity in the fields of science and technology, according to HWB tax director Tracy Jenkins.

“The types of activities that qualify for R&D tax relief cover a broad spectrum and can be challenging for businesses to apply in practice,” says Jenkins.

“HMRC has a number of offices around the country dedicated to handling R&D work so it stands to reason that any company seeking to gain maximum benefit from tax credits in this field will need specialist advice in order to recognise potential, fulfil the conditions involved and calculate how much relief can be claimed under the scheme.

Jenkins advises SMEs spending in excess of £10,000 on qualifying R&D during the specified accounting period to investigate the potential for claiming tax credit.  Broadly speaking, ‘qualifying R&D’ is work which is aimed at achieving an advance in science or technology through systematic investigation which seeks to resolve scientific or technological uncertainty. Applications must be made within two years of the qualifying year end and require robust documentation. 

SMEs with less than 500 employees and either turnover of up to €100m or a balance sheet value of less than €86m can claim an enhanced deduction against profits worth 175% of their current (non capital) R&D costs.  If this deduction exceeds company income, the enhanced figure can be used to claim a cash repayment from the Revenue of up to 14%, which represents a cash return of nearly a quarter of the original costs. 

“A technological or scientific advance might be a new or improved product, process or service and is one of the reasons why R&D tax credits are so attractive to startup companies,” explains Jenkins.

“These businesses may take some time to become profitable and in such situations R&D credits are more than just a tax incentive: they can provide a valuable source of funding because companies which find themselves in a loss situation can request cash rather than a tax deduction.”

Capital expenditure is not eligible for R&D Tax Credits but relief can be claimed for revenue expenditure including:

• employing staff directly and actively engaged in carrying out R&D
• paying a staff provider for staff provided to the company who are directly and actively engaged in carrying out R&D
• consumable or transformable materials used directly in carrying out R&D
• power, water, fuel and computer software used directly in carrying out R&D.

Details: Tracy Jenkins CTA 023 8046 1200 tracy.jenkins@hwb-accountants.com