What are R&D Tax Credits?Does my innovation qualify?

Profit Making Business

How R&D Tax Can Help your Business

If you have spent money on qualifying innovative activities in the past two years you can reduce your company’s corporation tax bill an extra 130% of the amount you spent on the innovation.

Under these rules at the most simple level for every £1 on R&D activities spent you will receive 26p in tax relief.

How does it work?

In the example the business has spent £20,000 in qualifying Research and Development Tax expenditure.

This expenditure is multiplied by 130% to give the enhanced expenditure amount of £26,000.

The enhanced expenditure is then subtracted off of the company's profit figure of £30,000. This leaves the company with a reduced profit level before tax of £4,000.

This reduces their Corporation Tax bill from £6,000 to £800, resulting in a total tax saving of £5,240.

Want to calculate your own?
Check out our R&D Tax Calculator

R&D Calculation

Profit Making Business Example
Company Information
Company Turnover
£100,000
Profit Made
£30,000
Corp. Tax Bill Before R&D
£6,000
Qualifying R&D Expenditure
Staff Costs
£4,000
Materials
£9,000
Subcontractor Costs (65%)
£5,400
(£5,000 @ 65%)
Agency Workers (65%)
£600
(£1,000 @ 65%)
Software
£1,000
Total
£20,000
R&D Calc Figures
Enhanced Expenditure
£26,000
Corp. Tax Bill After R&D
£760
TOTAL TAX SAVING
£5,240
*Please note these figures are representative of the claim. We do not put exact details of previous clients online.
Want to calculate your own?
Check out our R&D Tax Calculator

FAQS

Frequently Asked Questions

Does my business qualify for the SME Scheme?

SMEs can benefit from an enhanced rate of R&D tax credits compared to larger businesses. For a company to be regarded as an SME and qualify for this scheme it must meet the following criteria:

- Must be a UK Limited Company
- Must employ fewer than 500 people
- Have either an annual turnover of no more than £100 million or a balance sheet total not exceeding £86 million.

How far back can you make a claim?

There is a 2 year time limit to how far back you can make a claim on incurred R&D expenditure. The date that the costs were paid must have occurred within 2 years starting from your current company year end date.

For Example -  If your company tax year end date is the 30th June 2018, you can claim any qualifying R&D costs incurred going back to the 30th June 2016.

What happens if the project spanned over 2 years?

If your Research and Development projects spans multiple years we will help you to make a separate claim for each year including the respective qualifying expenditure. The total tax saving will be the same result as if the project fell into one tax year.

What happens if I sold the product we developed?

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Does it matter if the project failed?

Companies are able to make a claim for their R&D projects whether they were successful or not. The R&D Tax Relief does not discriminate between the two as it aims to encourage businesses to innovate. The scheme therefore helps businesses to mitigate some of the financial risk involved in research and development.

Do you want to take a Free Evaluation to find out whether your project qualifies?
We offer Free, No Obligation Evaluations to determine whether your project meets the Research & Development Criteria. Contact us today to find out more.
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