The tech sector moves at an extremely fast pace, which is why research and development is really important.
But there will be many companies, of all kinds, carrying out this research, unaware that there is a special tax relief available to them – one of the most generous of its kind in the UK.
And while tech firms may be the most likely to carry out research of this kind, the relief is actually available to any company in any industry.
So what is this tax relief?
Research and development tax relief allows small and medium-sized firms to uplift their research expenses by around 130%.
For example, if a company spends £100,000 on staff to develop new software, that qualifies as R&D.
The expense is uplifted by £130,000 for corporation tax purposes resulting in an additional tax saving of £24,700 (using 19% as the corporate tax rate).
If the company was in its development stage and was not yet profitable, the R&D expenditure can be surrendered for a cash payment.
In the same example, the company would receive a payment from HMRC for up to £33,350, (14.5% of the relevant expenditure) which is a nice addition to cash flow.
What projects qualify
It may not be obvious to the company owner that R&D is taking place because of the perception that it needs to be done by a person in a white coat in a lab somewhere.
R&D takes place where a 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.
In fact, if a project fails having undergone R&D, the tax relief can still be claimed.
There are a wide range of eligible projects within the tech field, including:
- Development of software/ applications/ operating systems
- Substantially improving existing systems
- Resolving a problem with hardware/ software
The question to ask yourself is “did we do something where there was uncertainty of the outcome at the beginning?”
If the answer to that question is yes, the possibility of an R&D tax relief claim should be explored.
However R&D relief is available to a very wide spectrum of companies which carry out developmental projects including, although not limited to those in the food sector, science arena, manufacturing industry, and even construction.
Costs eligible for the relief include:
- Staff and subcontractor costs
- Materials and consumables
- Software licences
- Apportionment of overheads
There are different rules for large companies and,or, those that receive grant aid towards the R&D work.
The relief is not quite as beneficial, but could still prove to be significant.
Making a claim
A claim can be made retrospectively, up to two years after the end of the relevant accounting period, meaning the benefit could cover two years, not just one.
A report detailing the projects undertaken and a calculation of the eligible expenditure is needed alongside the corporation tax return.
Gerald Thomas Chartered Accountants are experts in R&D tax relief and can assist you in making a claim – the firm has a more than 95% success rate on claims.
An initial one-hour consultation is free and the cost of making the claim usually works out as a small percentage (around 10%) of the tax benefit achieved.
For further information, contact Gerald Thomas Chartered Accountants on 01792 465155, firstname.lastname@example.org or www.geraldthomas.co.uk .