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Should my business be claiming R&D tax relief?

By Jaime Lumsden

Innovation is all the rage in business. However, it often comes at a price that can pressure any company’s finance.

Fortunately, the government seeks to encourage innovation. As more businesses utilise innovation, they can improve processes, find solutions to even complex problems and better serve customers. It also helps make the UK a competitive business hub in the global context.

Innovation is encouraged through research and development tax relief. With this relief, you reduce your tax bill, making it more affordable to access innovation for your business.

However, it is often hard to determine what ‘innovation’ comprises and who can claim the tax relief. We answer this and other common R&D tax questions below.

Who can claim tax credits?

Many businesses could claim R&D tax relief. Here are a few simple questions to ask yourself to determine your eligibility.

  • Does my business utilise innovative design, particularly in the pre-production stage?
  • Does our team face uncertain outcomes at the start of a project?
  • Do we spend time testing products and processes to eliminate uncertainties?
  • Do we carry out development work to win over sales and customers?
  • Do we utilise new technology?
  • Do you create new products or services that customers cannot access on the market already?
  • Do we create tailored solutions or make existing products and processes better?
  • Do we use innovation to remain competitive?
  • Do you go beyond applying existing technologies and processes to your output?

If you answer yes to any of the questions, you could be eligible for R&D tax credits.

How much can I claim?

R&D tax relief amounts to between 19p and 33p for every £1 spent on innovation. The average claim in the first year is £60,000, according to HMRC data.

If you are making your first R&D tax credit claim, you can seek a rebate for any corporation tax that has been overpaid in the last two years.

If you spend money on innovation, the relief can quickly add up and dramatically lower your tax bill.

Do remember that there are some costs associated. Working with a tax specialist to maximise your claim, will incur a fee which is typically only charged if you succeed.

How do I claim?

If you believe you could be eligible, do make a claim. The easiest way to do this is to work with an R&D tax specialist who can guide you through the process and improve the strength of your claim. They will also verify your eligibility before you claim.

It is also recommended to submit an R&D technical report that identifies the eligible projects, a breakdown of qualifying costs that can be claimed against and any other issues associated with your case. Again, a tax specialist can help you with this.

Once a claim is submitted, it takes around 28 days to settle (provided it is a straightforward scenario). If you have applied for a rebate and are successful, you should receive the money promptly as a repayment from HMRC. If you are applying for the latest financial year only, the relief will be taken from your tax bill or can be given as cash.

If you believe you may qualify for R&D tax relief, a UKBA advisor can take you through the process and help you create an effective claim.

If you have any questions or require assistance with R&D Tax claim, get in touch today.

Jaime Lumsden | UK Business Advisors (ukba.co.uk)

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