Have You Heard of Research and Development (R&D) Tax Credits?Published Tuesday, 15th June 2021
In a nutshell, Research and Development (R&D) refers to the actions that companies take to introduce innovative products and services that can benefit society at large.
Keeping that in mind, R&D tax credits are a government incentive established to reward UK companies for investing in innovation. The intent is to motivate businesses to dip their toes in the cutting-edge world of science, technology, healthcare, construction, and more.
It’s important to note that participating in the R&D tax credit scheme is not compulsory for all businesses, but it’s well worth considering. The credits are a valuable source of extra income that businesses can use to enhance products and services, hire new staff and ultimately expand as much as possible.
Who is eligible for R&D tax credits?
In general, companies that are eligible for R&D tax credits are:
- Limited companies in the UK that are subject to Corporation Tax.
- Companies that carry out qualifying research and development activities.
- Companies that spend money on recognised R&D projects and are directly involved.
There are so many businesses out there that have no idea they’re eligible for R&D tax credits. Perhaps the biggest obstacle is knowing what kind of activities qualify as R&D in the first place. First of all, R&D can take place in any sector, ranging from engineering to hospitality.
It doesn’t really matter how big your company is either. There’s room for SMEs with fewer than 500 staff members and large companies with more than €100 million turnover. If you’re creating new products and services or enhancing existing ones, there’s a high chance that your company qualifies.
What are the benefits of R&D tax credits?
Companies that spend money on qualifying R&D activities can claim back a cash payment or corporation tax reduction. Better yet, these businesses can receive up to 33% in reductions.
However, in case you’re still not convinced, here are a few more benefits to the R&D tax credit scheme:
- Your company will have extra funds that allow for expansion and the opportunity to make more profit. Claim back on staff salaries and subcontractor/ freelancer fees.
- Create more room for experimenting as a company and making a mark in your respective industry.
How do R&D tax credits apply to UK companies?
Now that we’re aware of some of the benefits, let’s paint a picture of exactly how R&D tax credits apply to companies in the UK. For example, many tech-based start-up businesses are innovative by their very nature. The owners will identify a gap in the market and structure their business around filling this gap. This results in a situation where several of the business operations can be classified as R&D expenses. The key is to determine which aspect of the business lends itself to R&D.
If you’ve been thinking about applying for R&D tax credits, now is the time to find out if you’re eligible. This incentive has been available in the UK since 2000, yet so many businesses are overlooking this wonderful opportunity to expand.
Not only does it directly benefit businesses in a range of industries, but it also serves as an opportunity to boost the UK economy.
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