A Guide to R&D Tax Relief

Jul 12, 16 A Guide to R&D Tax Relief

Is your company working on research and development? Then there are ways with which you could save the exuberant taxes that you pay to the government. Read on to find out more about what is in store for you for this year’s taxes in the form of R&D Tax relief!!

The R & D Tax relief:

Since your company is research oriented, you would be working on new technologies. This could be in the field of medicine, software, airfield etc. It could be a research into any new advancement which could help the larger masses of the society. In this scenario, your expenditure would be very high. So the government has decided to provide a tax relief – in the form of money to such companies which are research oriented. This is called the Research and development tax relief.

A Guide to R&D Tax Relief

Initially, this R&D Tax relief was given only to large companies. But the amendment was brought about around 2013, to encourage even small companies to be research oriented. With this amendment, SME (small and medium enterprises) and even start-ups can avail this facility. This amendment was basically done to encourage creative and effective development of innovation and technology – which is the need of the hour. The government believes that encouraging research and development activities will improve the economic condition of the country.

The terms and conditions to avail the tax relief:

1.  Your company should be research oriented.

2.  You should also be a payee of the corporate taxes. Meaning, that your company should be paying corporate taxes to the government. In this case, the tax relief that is provided by the government is deducted from the corporate taxes that you pay. Essentially, you would then be paying lesser amount as taxes to the government. If you have paid for your company’s corporate taxes for a minimum of two years, you would qualify to avail the credit facility.

3.  Also, your company should have enough cash-flows. This criterion is added to make sure that your company can sustain on its own, without only depending on the research and development tax relief only.

How to avail this facility:

Once you know that your company is eligible for Research and Development tax relief, all you need to do is to file this information – at the time of filing your corporate taxes. You need to mention if your company is an SME, start-up or a Large company availing this facility. It is good to provide some details of your research activities and also the cost incurred by your research activities at the time of filing the returns.

The benefits:

Since your company is into R & D, your capital expenditure can be very huge. But since this is important not just for your organisation, but also for the economic development of the entire country, the government will cover the following capital expenditure while providing you the Research and Development tax relief (https://www.gov.uk/guidance/corporation-tax-research-and-development-tax-relief-for-small-and-medium-sized-enterprises).

–  The staff cost that is required to run your organisation.

–  The software cost. Remember, that the software cost that you claim should be directly used only in the research and development activities.

–  The cost for hiring contractors and sub-contractors.

–  Last, but not the least, your material cost. Again, here it is only the material that is directly used for research and development purposes.