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The UK government’s desire for the nation to remain at the forefront of scientific and technological innovation has rarely been so pronounced – and one way they’re incentivising it is through R&D tax credits.

Indeed, threats like climate change have made research and development a headline issue in both the private and public sectors.

As such, the government seeks to reduce economic constraints on firms carrying out important research through tax reliefs.

We’ve created this guide to explain everything you need to know about R&D tax credits.

What are R&D tax credits?

Research and development tax credits (or reliefs) reward UK companies for working on innovative science and technology projects.

Not only are these credits financially lucrative, even unsuccessful R&D projects may be eligible for tax reliefs, which incentivises innovation.

An R&D project must meet specific criteria to be eligible for R&D tax relief. 

As stated by the government:

“The work that qualifies for R&D relief must be part of a specific project to make an advance in science or technology”

Advances in social sciences or theoretical fields are ineligible for this type of relief.

Note: a company must demonstrate how the project relates to, or will support, their trade. A project carried out in isolation of business goals would be ineligible. 

It’s worth remembering that an eligible R&D project doesn’t necessarily need to be something entirely new; the government may provide tax reliefs to a company working on improving an existing process or product.

The government provides more detail on the specifics of what makes and R&D project eligible for tax credits here.

How do R&D tax credits work?

The size of the company claiming credits impacts the type of R&D tax reliefs available.

When it comes to R&D tax relief, the government’s definition of an SME is a company with:

  • Fewer than 500 employees
  • A turnover of less than €100 million

Larger companies must apply for a Research and Development Expenditure Credit (RDEC), which works slightly differently to R&D tax relief.

We’d recommend looking at the specifics of how SME R&D relief and Research and Development Expenditure Credit for large firms work; there are a number of steps to consider when it comes to calculating the relief – and supporting your claim. 

Of course, it’s always best to work with a tax professional when it comes to investigating and claiming R&D tax relief. Our tax specialists are on hand to support you – get in touch today for a no-obligation chat.

In summary: R&D tax relief

As alluded to in our introduction, research and development can greatly benefit the Government and nationwide economy in numerous ways, but it also can directly benefit your business financially.

R&D tax credits can be used to reduce costs and drive future R&D projects, leading to an innovative and forward-thinking future for your business.

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