R&D relief for Small Companies – not just for people with ‘white coats’!

R&D relief for Small Companies – not just for people with ‘white coats’!

Research and development tax relief (R&D relief):

What is R&D relief?

R&D relief takes place for a business when a project undertaken seeks to achieve an advance in overall knowledge or capability in a field of science or technology.

To qualify, the company must be carrying out research but this is not just restricted to ‘white coat’ scientific research but also covers creating new processes, products or services, making appreciable improvements to existing ones. Some examples of qualifying activities include software development, bio-energy, cleantech, agri-food and life health sciences. A lot more activities are actually R&D related but many small business are not aware of this.

What is the eligibility for a company to claim R&D Tax credit?

  1. Be a UK registered company on Companies House. Sole traders do not qualify.
  2. Be a going concern – trading and transacting business
  3. Not in administration or liquidation
  4. Be undertaking qualifying activities and spent money on the same

How does it help the business?

R&D relief allows companies that carry out qualifying R&D related to their trade to claim an extra corporation tax deduction for certain qualifying expenditure.The level of relief available depends upon which scheme the company uses. In cases when the company is loss making, certain qualifying portion of the loss can be surrendered to get the relief.

How many R&D Schemes are there?

There are two main schemes 1. The SME scheme 2. Research & Development Expenditure Credit scheme referred as RDEC scheme.

  1. SME Scheme

Under the SME scheme companies can get 230% relief on their qualifying R&D costs which can reduce their corporation tax bill. Loss making companies can surrender their losses in return for a payable tax credit into the company’s bank account.

  1. RDEC Scheme

SMEs Companies that do subcontracted R&D work can claim under this scheme. Companies belonging to a group can surrender their RDEC to another company in the same group to reduce their tax liability.

How is a company termed SME for the relief?

  • Staff headcount less than 500 and
  • either turnover less than 100 million Euros or the Balance Sheet total less than 86 million Euros

How does a company qualify for R&D tax credit?

  • Be a UK Limited company subject to corporation tax
  • Carry out research and development activities
  • Have spent money on these development projects

Is there a special sector that qualifies for the R&D relief?

Contrary to general perception, all kinds of companies from cheese-making to engineering and software development to construction can qualify for the relief. Any business sector will qualify if there is innovation, creation of new products or creation of new processes.

What costs qualify for the R&D relief?

  • Direct R&D staff costs – companies can claim for salaries, wages, class 1 NIC and pension contributions for staff directly engaged in the project
  • Software, materials and consumable items directly used for the project including heat and light
  • Subcontracted R&D can be claimed at 65% of the costs

How is the R&D relief claimed?

R&D relief can be only claimed by completing and submitting a corporation tax return which will have the computation for the R&D relief under the SME scheme and/or RDEC scheme that the company has undertaken.  Company making a claim for the first time is also allowed to claim for the previous two completed accounting periods.

Which R&D scheme is right for my business?

  • If you are a small company ie an SME as mentioned above, you can claim under the SME scheme and most start ups will qualify under this category
  • If you are a large business (500 staff or more) then you will be claiming under the RDEC scheme
  • If your business receives grants which are termed state aid then you can still be eligible to claim under the RDEC scheme

Zyla Accountants have 100% success rate in successfully claiming R&D tax credits for our clients under both SME and RDEC schemes.

Please conact [email protected] and we can discuss your business and R&D relief that can be claimed in detail.

New Tax year prompts submission of 2019-20 Tax Returns

New Tax year prompts submission of 2019-20 Tax Returns

With “Stay at home and save lives” mantra on everyone’s lips, all of us have a bit more time on our hands to take care of ourselves and our tax situations. Why leave the most important return to HMRC to later on when there is time to gather all the relevant infirmation required on our income and expenses and help your accountant to get started on your tax return?

As I mentioned in the summary above, it is also better to have a clear picture of our income in 2019-20 if we are challenged or ask to prove the level of income, self employment, as an employee or dividends as a company director by HMRC. We understand that it is a challenging time with nearly 9 million workers expected to be furloughed in the UK. Perhaps the time on furlough gives you ideas about starting your own business? Now is the time to start looking at the ways to register your business and look at all the help that is available from the government so that once we are back to normal in a few months time you have a clear plan.

Self Employment Support Income

The Government sponsored scheme allows to claim a taxable grant worth 80% of your trading profits upto a maximum of £2500 per month for the next 3 months.

You can apply if you are self employed individual or a memeber of a partnership and

  1. You have submitted your Self Assessment Tax retrun for the year 2018-19
  2. Traded in 2019-20
  3. Are trading when you apply or would be except for COVID-19
  4. Intend to continue to trade in the tax year 2020-21
  5. Have lost trading / partnership trading profits due to COVID-19

Zyla Accountants are keen to help you in every regard in this challenging time to file your self assesssment return, register as self employed where required or where you need help to start a limited company or just need good caring accountants to support you and guide you. Email [email protected] for a prompt reply.

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