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R&D tax relief from HMRC

Alison Lynch, Managing Director, HowarthLynch

Are you eligible for Research and Development tax credits?

Research and development tax relief is a government-initiated scheme to encourage the development of innovative technology in the UK. However, many companies do not realise they have eligible projects.

To qualify for the R&D tax relief, companies must meet all three of the following criteria.

  • A company must be seeking to make an advance in science or technology. This doesn’t have to be ground-breaking. You could be duplicating a product or process that is already on the market but making it in an appreciably improved way, e.g. faster, cheaper, smaller, lighter.
  • A company must be overcoming technological uncertainties. This means coming across ‘blind alleys’ and being unable to use routine methodology to develop the product or process.
  • The advance in technology must not be readily deducible by a competent professional in the same field. To demonstrate a degree of difficulty, projects should take considerable time to complete (typically at least three months) and be completed by qualified professionals in that field.

From 1 April 2012, the government increased the uplift of R&D expenditure to 125% for small and medium-sized enterprises (SMEs). So, for every £1 spent on qualifying R&D costs, HMRC will give a further £1.25 to deduct against the company’s taxable profits. Qualifying expenditure includes such things as staff costs, consumables, software, subcontractors and heat, light and power.

For example, if a company spends £100,000 on qualifying R&D expenditure, it will receive an additional £125,000 relief against its taxable profits. If the company pays tax at 20%, this will generate an additional tax saving of £25,000.

If you are making a loss, not only do you not pay Corporation Tax, but your hard work will be rewarded with a cash payment of about 25p in every £1 identified (conditions apply).

If you receive grants or customer funding towards your projects, you may still be eligible to claim R&D relief but at a lower rate. Details are on our website: www.howarthlynch.co.uk.

Feel you may have already missed out? HMRC gives a two-year grace period to submit your claim from the end of the financial year in which the R&D occurred. So, if your year end was 31 December 2011, you have until 31 December 2013 to amend your Corporation Tax return.

If you think you may be eligible, please call me on 01142 364457 or email me (alison.lynch@howarthlynch.co.uk) for a free pre-qualification health check, which we can do over the phone.

See my blog regarding tax on patented services for more news on tax law changes.

Do call me on 01142 364457 or email me.

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