If you’re a UK start-up you may already have heard about R&D Tax Credits. But do you know exactly what they are? You’re not alone if the density of information and advice available to new companies has left you in the dark. So, in one sentence: research and development (R&D) tax credits are a form of tax benefit designed to reward UK companies for innovation.
Who can claim?
Any UK limited company which, at its own financial risk, is looking to resolve a ‘technical or scientific uncertainty’ can claim. So, if you’ve set up a company to create a brand-new product or process, or to significantly improve on existing ones, then there’s a good chance you’ll qualify. And it isn’t limited to a particular industry: whether you’re innovating in Nano-tech, software development, or food manufacture, you are equally eligible.
What costs qualify?
You can claim for expenditure that directly relates to the development activity, such as the salary and subcontractor costs of the people involved, materials used for prototyping, even certain software purchases.
What does it mean for your company?
An injection of cash can be a life saver for companies desperate to innovate and stay ahead of the competition. That’s the potential outcome of an R&D Tax Credits claim. It can come in the form of a refund of corporation tax; a tax credit that can be surrendered for cash; or tax relief to put against future tax bills. Understandably, there are qualifying criteria, but you could ultimately receive between 20-33% of your development spend.
‘But hold on, we’re not trading yet …’
Profit? What profit? As an innovative start-up, your profit may still seem like a distant dream. But R&D Tax Credits aren’t only for those companies already turning a profit. In fact, companies running at a significant loss are more likely to receive the most benefit from the scheme: a generous 33p for every £1 of qualifying costs. So, whether you are currently loss making, in profit, or at pre-revenue stage, you can claim for R&D Tax Credits.
Tips on maximising your claim
- First things first, make sure that everything you pay out on development goes through your company accounts.
- Include your accountant in R&D Tax Credit discussions. They are best positioned to advise you on how this can be used by your company moving forward. That said, keep in mind that your accountant may only have a rudimentary knowledge of the R&D scheme (you can’t expect them to be experts in every field of taxation).
- Finally, if you’re looking to make a claim, the simplest and most headache-free way to do so is by engaging the services of an R&D specialist. Even if you think there’s only a slim chance you qualify, a short chat with them will set you straight. And most R&D specialists will be happy to provide this initial consultation without it costing you a penny.