Research and development (R&D) tax credits were created by the government in 2000 as a form of corporation tax relief available to limited companies. Their purpose is to reward past R&D efforts and incentivise continued development work. By offering the relief the government seeks to foster a culture of innovation which in turn should promote economic growth.
Since their inception R&D tax credits have continued to get more and more generous. They work by rewarding qualifying companies with a substantial cash repayment or corporation tax deduction.
What are R&D Tax Credits worth?
A small or medium size company (SME) can receive up to 33p for every £1 spent on development activities, and a large company can receive up to 10p for every £1. This can translate into a significant cash payment to the claimant.
This is illustrated by the Government’s latest published statistics, stating that the average cash benefit obtained from an SME claim is circa. £53,000. The average value for a large company is circa. £270,000.
Once received, the claimant company is free to spend the money as they wish – there are no restrictions. Unlike other forms of investment such as a bank loan or equity, the cash does not need to be repaid nor do you have to give up any equity stake in your company. It is free cash.
When can I claim them?
R&D tax credits are available to limited companies and are made as part of your corporation tax return.
You have two years from the end of your accounting period in which to make a claim. As a result, most companies who are new to the relief tend to claim for two accounting periods together – making that first claim even more worthwhile.
Just to dispel a common myth, you do not need to be profitable to make a claim. We often hear companies say that they cannot make a claim as they haven’t made a profit yet – this is simply untrue. A loss-making company can still make a claim and receive a cash payment from HMRC.
Given the huge financial rewards on offer it is recommended that every company considers if they could be eligible for the relief and seek expert advice.
Matthew Jones, Managing Director at LimestoneGrey, commented:
‘R&D tax credits are a fantastic way to receive a cash boost and there are no restrictions on how the money can be spent.
Many companies will be involved in R&D activities and some may not even realise it. It is always recommended that you speak to an expert to determine your eligibility. As a benchmark, if your project involved testing, prototypes, trial and error, research and investigations or you made a couple of mistakes along the way, it is a good indication that you meet the relief criteria.
At LimestoneGrey, will offer free consultations to discuss your project(s) to determine whether they would be eligible for the scheme, so there is really nothing to lose.’