Since its introduction in 2000 Research and Development (R&D) Tax reliefs have been an increasingly popular Government backed incentive. By encouraging innovation and increasing spending on R&D activities SMEs (small or medium sized enterprise) can generate effective tax savings of up to 43.7%.
In the current economic climate R&D plays a fundamental role in helping to differentiate businesses from the competition by e.g.:
- Creating unique opportunities for new or enhanced revenue streams.
- Optimising productivity & business process efficiencies.
- Reducing costs, wastage & energy consumption.
Profit making SMEs (small or medium sized enterprise) may be able to claim a deduction against taxable profits of up to 230% of the initial expenditure. Loss making SMEs may be able to claim a tax credit of up to 33.35%.
Companies have two years from the end of their accounting period to claim, so there is a potential opportunity to review last year’s R&D eligibility. However, the compliance requirements are complex so sufficient time should be factored in when preparing the claim.
What you might not know about R&D tax reliefs:
- R&D can be related to changes or modifications of an existing product. It does not have to be solely linked to new products.
- R&D expenditure can also be relevant to services and processes.
- Unsuccessful and internal projects can potentially qualify as R&D.
Proposed changes:
From April 2023 R&D tax reliefs for companies will be reformed to:
- Support modern research methods by expanding qualifying expenditure to include data and cloud costs.
- More effectively capture the benefits of R&D funded by the reliefs through refocusing support towards innovation in the UK.
- Target abuse and improve compliance. All claims will need to be made digitally and more detail will be required.
Summary:
R&D remains a very generous tax relief and forms a central part of the Government’s incentives to assist in restoring the UK’s economic health. With an increasingly broad scope, reaching more businesses, this is a core tax planning area.
If you believe that your business might be eligible for this relief then please make contact today – tax@enhance-professional.co.uk