Innovative businesses, both large and small, are hungry for funding to assist them as they emerge from lockdown and begin their recovery.
While the Government has offered several loans and grants to COVID-stricken businesses, there is an existing tax relief that remains largely unclaimed.
Data from HM Revenue & Customs (HMRC) analysed by tax reclaim specialists Catax suggests that more than £84 billion of Research and Development (R&D) tax credits have not been claimed, while it is estimated that around 80 per cent of eligible companies have either not claimed or have under-claimed.
This tax relief allows SMEs to claim up to 33p for every £1 spent on qualifying R&D activities, while large companies using the Research and Development Expenditure Credit (RDEC) can claim up to 10p for every £1 spent on qualifying R&D activities.
Claims can even be made against projects that result in a loss or previous R&D activities in the last two years.
To benefit from R&D tax credits, you must:
- Be a UK limited company that is subject to Corporation Tax.
- Have completed qualifying research and development activities.
- Have spent money on an eligible project.
- Have incurred qualifying expenditure.
Businesses can claim R&D tax credits where they develop a new product, service or process or if they enhance an existing one.
When submitting an R&D tax credit claim, there is a wide variety of expenditure that can be covered including employment costs, subcontracted R&D work, software and consumable items used in the development.
When you deduct R&D expenditure from your taxable profits or add it to your losses you can benefit from a Corporation Tax reduction if you are profit-making, a cash credit if you are loss-making or a combination of the two.
Why aren’t more businesses claiming R&D tax credits?
Considering the availability of funding via this tax relief it may seem odd that more firms don’t make claims. The reasons why many businesses don’t utilise tax credits are often complex, but a key issue is that they do not believe they are eligible.
There is a common misconception that these tax credits are only available to firms in the most innovative of sectors such as IT and engineering. However, claims have been processed successfully for a wide range of sectors.
Think you might be eligible for a claim?
If you believe you might be eligible for R&D tax credits it is highly recommended that you speak to specialists who can assess and assist you with your claim.
If you would like assistance with reducing your company’s tax liabilities our experienced team of tax planning professionals may be able to help. To find out how Macalvins can help, please get in touch.