Claiming R&D Tax Credits: What You Need to Know
It’s a great incentive from the UK government; conduct research and development activities within your business and you’ll benefit from a reduced tax bill or a cash repayment. In return, the UK benefits from an increase of innovation, investments and a stronger economy.
A great plan if your business consists mainly of laboratories, scientists and the latest technological capabilities, right? Well, not entirely.
You may be surprised to learn that even though you wouldn’t class the purpose of your business as ‘research and development,’ a project you may be working on actually could qualify for R&D tax credits. Let’s look at some reasons why…
Who Can Claim R&D Tax Credits?
To qualify for R&D tax credits, a project must seek to make an advance in science or technology, but before you immediately dismiss any hope of claiming, you need to first consider what an advance really means.
For instance, as a smart business owner it’s highly likely you look for ways to reduce costs, make better use of your resources and improve efficiency. So you may work on developing processes that support your business to increase manufacturing capability, produce less waste or speed up development and design times.
Whether these new processes apply to development of a new product or improvement of an existing product or process, the same rule applies; you are seeking an appreciable improvement (or advance) in:
- How you make something
- How your product performs
- How much it costs to make
If achieving this improvement isn’t obvious and requires research as to which solution or approach will be more effective, then this comparison work could qualify as R&D.
R&D Examples for Your Sector
Projects that seek an advance, or appreciable improvement, will obviously vary from sector to sector.
For example, in manufacturing the advance could be identifying ways to reduce component count or increase reliability. In I.T. or software development it may relate to improved security or reduced system overheads. In construction, a new engineering method or efforts to make products or processes environmentally friendly could also qualify.
Additionally, even if your project fails to achieve an advance following your research and trials, it can still qualify for R&D tax credits; in fact, not being completely successful can actually support the idea that there was a significant technological challenge.
The key point to remember is that an advance was sought, whether the end result was successful or unsuccessful – this is where the claims are made.
What You Can Claim for Your Advance
By now you may already have in mind a current (or potential) project that, much to your surprise, does qualify for R&D tax relief. But which costs can you claim for?
These generally fall into two categories:
- Activities that contribute directly to the attempted advance
- Certain essential administrative or supporting activities
Within these costs you can claim for salaries and the cost of employment (including employer’s national insurance and pension contributions). Happy days.
You may also be able to claim for materials in some cases, although recent changes to legislation restrict this option depending on the circumstance.
Don’t Miss Your Opportunity to Save
So if you were wondering if your business activities are eligible for R&D tax credits, then the answer could quite possibly be YES!
Of course, the area of R&D possibilities and applications is so vast we could never encapsulate it all in this brief overview. However, if you’re after a definite confirmation that you can claim R&D tax credits, there is a quick and convenient option. Just give us a call at R&D Tax North West1 on 01827 338118.
We will be happy to answer your questions and explain how R&D could apply to your business.