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Tax Credits For Research And Development

Julie Lord

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Are you missing out on research and development tax credits? A lot of companies are eligible to claim bank thousands of pounds from HM Revenue & Customs(HMRC) in the form of R&D tax credits, yet they don’t realise it. To ensure this does not happen to you, read on to discover everything you need to know…

First and foremost, let’s establish what these tax credits are. They were introduced in the UK in 2000 and essentially they allow you to claim back money your company has invested in research and development. You are actually able to claim back anything up to 32.6 per cent of your research and development costs. Thus this could easily amount to hundreds and even thousands of pounds.

Why do the government allow you to claim for this? They do so because they want to generate a more innovative business culture in the United Kingdom. Thus, they need to encourage UK businesses to invest more money in research and development, and tax credits are undoubtedly one of the most effective ways of doing so. As a result, they are incentivising businesses to develop existing products, processes and services, as well as new ones.

Nevertheless, as you may well imagine there are obviously certain criterion in place in order for you to be eligible for R&D tax credits. Firstly, your company needs to be liable for corporation tax, as you will make your R&D claim when you fill out your CT600 Corporation Tax Return. Aside from this, the two main factors that are considered when determining your eligibility are ‘uncertainty’ and ‘innovation’. What does this mean? Well, you basically need to be able to prove that your business has taken a risk by doing something innovative, whether it’s improving a service, developing a product or creating a new process. If you can do this you will qualify for R&D tax credits.

If you are eligible for R&D tax credits you will probably be wondering what expenditure you can claim for. You will definitely be able to claim on revenue expenditure and in some instances it is also possible to claim on capitalised revenue expenditure. This includes consumable items, i. e. materials, power, equipment, light and such like, as well as the cost of hiring any freelancers or subcontractors. Capitalised revenue expenditure also covers staff costs, which can include employers NIC and gross salary. Nonetheless, you will need to liaise with a chartered accountant in your part of the world to determine which of these you can actually claim for.

It is highly advisable to use the services of an accountant or financial advisor whenver you are aiming to raise business funding , seek government funding or grants and when claiming for research and development tax relief. This is especially the case when you consider the fact that you could incur a 30 per cent penalty under the new HMRC penalty regime. Moreover, you will normally be required to supply documentation that supports your claim, which your accountant can advise you on to ensure that you provide the correct documents.

To conclude, you could be missing out on a huge sum of money if you overlook the possibility of claiming for R&D tax credits. In London alone £420 million was claimed for, with in excess of £1.3 billion being claimed for across the UK.


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