esearch and Development tax credits are a government incentive to assist businesses involved in innovative projects to reduce their corporation tax liabilities and, if loss making, to receive tax rebates. Specialist advice is required to assess the qualifying expenditure, write the project reports and complete the financial computations.
Additional tax reliefs are given for qualifying expenditure incurred by companies in order to encourage businesses to engage in innovative research and development (R&D) projects and ventures.
HMRC R&D tax credits can help many new start businesses by strengthening cash flow and reducing tax liabilities. Established businesses can also utilise R&D facilities when embarking on any kind of innovative project which incurs qualifying expenditure.
How does it work?
- If the company spends money on “qualifying activities”, enhanced tax relief is available.
- SMEs can deduct an additional 130% of qualifying expenditure in the tax computation. E.g. if there is qualifying expenditure of £50,000 in the P/L, which will mean a corporation tax deduction of £9,500, this can be enhanced by a further £65,000 meaning an additional tax deduction of £12,350.
- If the additional deduction creates a loss, the loss may be surrendered in return for a cash payment of 14.5% of the surrendered amount.
Qualifying expenditure is revenue expenditure on a project that seeks to achieve an advancement in science or technology relevant to the company’s trade.
This may sound like white coats and test tubes but it can be applied across almost all sectors.