R&D tax relief – could you be missing out?
SMEs do not often get much of a break – let alone a tax break. So the relief described below is unusual in that respect. It is also unusual in that many SMEs are blissfully ignorant of its existence and fail to take full advantage of a legitimate means by which their corporation tax bill can be reduced.
The reason why the relief has not gained popularity in the SME sector is probably because of the misconception that research and development is only carried on by the big multi-nationals. We are all aware of the text book example of research and development carried out in the pharmaceutical industry whereby years of laboratory work, research and studies culminate in new break-through drugs. However, this is not the only (or indeed most typical) form of research and development. In fact most SMEs, whether they know it or not, carry out some form of research and development. It may not be labelled research and development, but when properly analysed that is exactly what it is. Most SMEs will research, test, design, engineer, make, or change new products and processes. In fact, one might call all research and development an attempt to innovate – and is innovation not the heart and soul of the small business?
Naturally, not all forms of research and development will qualify for tax relief. The rules provide that the company in question must engage in a project which seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty. Whilst this test might seem daunting at first sight it is surprising how many projects in a myriad of industries will qualify – provided that the claim is presented properly and with all the necessary information and evidence.
The relief is extremely generous for SMEs, as demonstrated by the following examples:
|Example 1||Example 2||Example 3|
|Normal taxable profit (loss)||£100,000||£(10,000)||£6,000|
|Estimated R & D expenditure||£20,000||£20,000||£20,000|
|R&D claim (130%)||£26,000||£26,000||£26,000|
|Corporation tax savings||£26,000||£6,000|
|Enhanced corporation tax loss available to carry forward/back||£26,000|
|Payable tax credit (14.5%)||£2,900|
The calculations can seem tricky. However, in very simple terms (and in most cases where the business is making profits) you will get an additional £130 for every £100 that you have spent on R&D. if you want to discuss our risk free proposal in relation to making a claim for this valuable relief then contact us to arrange a no obligations and free initial consultation.