Research and development tax credit for small business

The nature of small business is such that owners are often juggling several tasks at once. With the responsibilities of managing staff, generating business, and keeping on top of the accounts all vying for priority, it’s easy to see how potential tax benefits could go unexplored.

If that’s the case with your business, you’re not alone. Research suggests that around 90% of companies eligible to claim research and development tax relief don’t do so and are thus missing out on potentially significant cash injections.

What are R&D tax credits?

The UK government is encouraging businesses to invest in research and development activity by offering financial support for such projects, which is available at the end of the tax year. Calculated as part of the Corporation Tax Return, an R&D tax credit claim enables small businesses to reduce their CT bill by an additional £130 for every £100 spent on R&D.

So, if your business has spent £100 on R&D activity, the taxable profits are reduced by a total of £230.

What is the eligibility criteria?

In order to be eligible for R&D tax credits, a project must meet some basic criteria, namely:

  • Be seeking an advancement in science or technology
  • Be aiming to overcome a specific uncertainty
  • Be seeking a solution that cannot be readily found by a professional in the field

The definition is deliberately vague so that a range of activities in a range of sectors can be rewarded financially for their endeavours.

In order to be eligible to claim specifically under the SME scheme, your business must have fewer than 500 employees and an annual turnover of less than €100 million (or a balance sheet of less than €86 million).

What costs can be claimed?

Expenditure that directly relates to the project – such as staff wages, consumables and utilities – is classed as ‘qualifying expenditure’ and can be claimed for. A percentage of sub-contractor costs and, where applicable, costs for software licences and clinical volunteer payments can also be eligible.

How can we claim?

The process of claiming can be complex, so it’s advisable to seek help from a tax specialist such as R&D Tax Solutions when putting together an application. Essentially, records of expenditure relating directly to the project must be gathered and totalled, and the calculation made and inputted onto the CT form.

In support of the claim, documentation should be supplied which details the objectives of the project, the methods and tools used, and the challenges or uncertainties that had to be overcome. These documents help make the claim successful and ensure your business gets rewarded for its investment into innovation.

If you think your business is eligible for R&D tax credit under the SME scheme, contact a tax professional today to begin preparing your claim.