SME Tax Relief Opportunities for Research and Development (R&D)

Research and Development "Research and Development" by Nick Youngson is licensed under CC BY-SA 3.0

“Your company can only claim for R&D tax relief if an R&D project seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty – and not simply an advance in its own state of knowledge or capability. The project must relate to your company’s trade – either an existing one, or one that you intend to start up based on the results of the R&D. If your company or organisation is claiming tax relief under the SME scheme it must own any intellectual property that might arise from the project.”

So, it is not just about products it could be process improvement or invention of software or another advancement, e.g. new things in construction.

For many companies, investment in innovation is a costly endeavour both in terms of time and money. Nonetheless, many new start-ups or advancements come about because they have invented a new product or service or way of doing things. Most will want to continue to succeed and grow their business, so there will be a need to build on the success of those initial products or services and make them even better, or even just move with the times and make them more technologically advanced.  This is all comes from investing in innovation.

However, many smaller businesses are not benefiting from the tax relief available for research and development. The tax relief has been made available by the government to encourage UK businesses to invest in innovation and grow our economy. Since the financial crisis which started in 2008 and more recently “Brexit”, there is a need to stimulate the UK economy.

For small to medium sized enterprises (SMEs) the tax relief on offer is very generous. From the 1st April 2015, businesses of this nature are able to claim tax relief on qualifying research and development costs of 230%. This means that for every £100 spent on this type of expenditure, a company could reduce its’ profits for tax calculations by a further £130 on top of the £100 spent. You can still claim this relief even if the company makes a loss and do not pay any tax by claiming and receiving the relief as a payment.

So small businesses need to ask themselves:

  1. Are we developing a new product, service or way of doing things?
  2. Can we evidence how much we spend on this?

If they answer “Yes” to the above questions, they need to check if they are claiming this relief – and if not, why not? It is currently estimated that 95% of small businesses are not currently claiming this valuable incentive – can you afford not to?

 

For more information, please feel free to get in touch on enquiry@w-l-p.co.uk.

Image Attribution: “Research and Development” by Nick Youngson is licensed under CC BY-SA 3.0