R&D Tax Credits - All you need to know
Some businesses miss out on the opportunity of research and development tax credits. Don't let this happen to your business especially in the time of a recession where research and development can mean your business is in a good position at the time of an upturn.
What are they?
Research and development tax credits are essentially a form of business tax relief. The tax relief can either reduce a businesses’ tax bill or, for certain small and medium sized businesses, be provided as a cash sum. Businesses can claim R&D tax credits on specific areas of their revenue expenditure.
R&D tax credits are provided by the government as an incentive for businesses to invest in research and development. It is seen as a form of support when a business wants to produce a project that, for example, creates a discovery in new technology.
Many businesses are able to claim R&D tax credits and some will not realise that they are missing out on this government funding. As far as government funding goes, R&D tax credits are the biggest single funding mechanism for business research and development.
Continued investment in research and development is seen as very important for businesses in the economic downturn as it means they will find themselves in a better position to compete, and be able to excel at the time of the economic upturn.
The overall aim of R&D tax credits is to encourage greater spending from businesses on research and development and therefore promoting investment in innovation.
Who can claim?
Only businesses can claim and this is categorised:
- Small and medium size businesses (SME’s)
- Other sized businesses such as large businesses
What expenses are eligible for R&D tax credits?
There are certain aspects of revenue expenditure where R&D tax credits can be claimed, which are applicable to small or medium sized businesses, or a large business. For a business to be carrying out research and development, it has to involve work to resolve scientific or technological uncertainty aimed at achieving an advance in science or technology. All of the following expenses apply for both categories of business:
- Employing staff that are directly and actively involved in carrying out research and development.
- Paying a staff provider for staff that are going to be actively involved in carrying out research and development.
- Physical materials that are used directly in research and development.
- Any water, fuel, power and computer software that may be directly used in research and development.
What periods can businesses claim R&D tax credits for?
Businesses claim R&D tax credits when submitting their corporation tax return. There is a time limit on this and it is now 2 years after the last relevant accounting period.
