Can Your Business Benefit from Research and Development Capital Allowance?
Is your business carrying out research and development (R&D) work? If so, you may be eligible for R&D tax relief. Carrying out R&D can be an expensive part of developing your product/service and growing your business. So, finding a way to claim back tax against your R&D expenses is a sensible way to reduce your expenditure and free up more cash for growth investment.
What are Research and Development Capital Allowances?
The use of assets and facilities for research and development can be deducted in part thanks to Research and Development Capital Allowances (RDAs).
When it comes to developing your product or service and growing your business, R&D can be expensive. Therefore, it makes sense to devise a plan to use back taxes to offset your R&D costs, helping to reduce your spending and increase your available funds for development investment. R&D spending for small to medium-sized firms can be written off as a tax deduction up to 230% of actual costs. Therefore, if a company’s capital expenditure qualifies for RDAs, they stand to gain significantly.
You may be eligible for RDAs if your business is taking a risk by creating new goods, methods, materials, or services (or upgrading ones that already exist) and investing money in capital equipment as a result.
However, you can’t just apply pre-existing solutions to a common problem as your project focus. According to the BEIS standards, an R&D project is one that aims to enhance science or technology by addressing uncertainty in those fields for tax purposes. The information sought cannot already be in the public domain.
Is Your Company Eligible for the Relief?
To be eligible for the R&D tax relief, your company must have:
- Less than 500 employees.
- Turnover below £100 million.
- Assets below £85 million.
Where you have qualifying expenditure that’s been incurred on R&D projects, allowable costs are increased by an additional 130% for tax purposes. So, for every £100 spent, £230 can be deducted from your profits when calculating tax – a helpful relief against your tax costs.
To claim capital allowance or payable tax credit, you will need to provide a report explaining what scientific or technical uncertainty you were trying to overcome. You also need to explain how your project attempted to resolve it and why it couldn’t be easily worked out by a professional working in the specific field or sector. The project doesn’t have to be successful to qualify for relief.
Using the current 19% corporation tax rate, every £1,000 of qualifying expenditure will result in a tax saving of £437. If you’re making a loss, rather than carrying it forward, you can opt to surrender it for a payable tax credit of 14.5% of the loss – that’s a cash receipt of £333.50.
Talk to us About Exploring the R&D Allowances
It’s possible that your company has been carrying out qualifying R&D work without even realising it. If you are, that’s a substantial tax relief that could be lost. The fact is that many businesses find claiming R&D capital allowance to be daunting, even if they have claimed it before. Overclaiming (i.e adding costs to your claim that aren’t eligible) can raise suspicion with HMRC and potentially lead to a wider investigation into your tax affairs. But underclaiming means leaving off costs that could easily lead to thousands of pounds in extra tax relief – money that rightfully belongs to your company.
At Hysons, Chartered Accountants we have the knowledge to make the claim process straightforward. Our team can discuss your recent development work and help your business in putting together a watertight R&D capital allowance claim.