R&D Tax Credits Explained..

What are R&D Tax Credits?

In the UK, many businesses thrive on innovation to drive the economy forward, but not many know about R&D tax credits.

Innovations are not cheap ventures and they require a lot of money that could come from tax relief, funding, grants, hand-outs or the individual businesses. A lot of the money goes into experimentation research and development (R&D).

The UK Government helps to finance these innovations through research and development tax credit. R&D tax credits incentive makes it easier for companies working on innovations to complete their processes and embark on any new ones they may have. Innovations could be either introducing new products into the company/market, or re-inventing the existing products to make them better.

It is however challenging for companies to claim R&D tax credits.

One of the reasons being that many of the companies do not know if they qualify for the tax relief or not.

Technology and innovation make up most of the research and development activities that are eligible for R&D tax credit. It is therefore paramount that when claiming for R&D tax credit that the required evidence is provided to show eligibility.

The government definitely encourages many companies to take up innovation processes. There is however a very big difference between real tax reliefs that encourages innovations and grants, hand-outs and funding to every organisation that comes up and claims to develop new services and products.

R&D tax credit specialists check if your company’s innovations qualify for R&D tax credits.

After that, it gets easier to quantify the financial benefits that come with R&D credit tax after submitting your claim.

Why use R&D tax credits specialists?

Many companies that claim R&D credit tax relief, use specialist organisations that inspect the processes and products and every innovation put in place and submit a report.

They do this physically by visiting the companies and engaging in face-to-face discussions. While all this is all good, it can come with flaws. Some of these flaws are:

– Time wastage as some people may not find it to be effective or efficient. Developing any new product requires a lot of input in both time and costs. With improvement time scales, a meeting with customer SLAs is not always feasible as there is always the possibility of last minute changes. There is also the possibility of the meetings turning out as non-productive.

– Innovations require that every member of the technical team be present and when specialists want to meet the whole team during their feasibility studies, it becomes almost impossible to let everyone go. While it may seem like a hard task, there is no other better way to be certified as eligible but to meet with the team of R&D specialists. Some companies however prefer doing things their own way and in many cases, this works just fine.

Who are eligible for R&D tax credits?

Another question that many people ask is who is eligible for the R&D tax credit relief. Any company that pays Corporation Tax is eligible. These are usually Limited companies. The company should have qualified people and subcontractors carrying out the development of the services, processes and products. These people understand the uncertainties and unpredictability that come with innovations and therefore qualify for R&D tax credit relief.

Are R&D tax credits worth all the trouble?

Established in the 1980’s, R&D tax credits, benefits both large and small businesses in UK.

Any company that invests in any kind of innovation is eligible for R&D tax credits. This also goes for both large-scale manufacturing companies, small-scale enterprises SMEs and start-ups.

Many of the companies however fail to take this advantage maybe because they do not know whether they are are eligible for government tax relief.

Any company that spends money to develop its services and products and bring new ones into the market qualifies for R&D tax credits.

Many companies still do not know that R&D credits are the best alternatives to any grants given for development and research funding. If you have an innovation grant to carry out research and development, then you can also complement your funding with R&D tax credits.

The answer to the question on whether R&D tax credits are worth all the trouble is yes. If you are a limited company and you are spending around £200,000 on your research and development activities, then you can claim £460,000. This is expenditure for Corporation Tax calculation purposes.

What this means also is that any limited company that pays a tax rate of 20% would easily manage to offset the £200,000 spent on tax payables and offset another additional £250,000 under the R&D tax credits scheme.

This is very helpful especially for companies making losses and for start-ups.

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