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September 7th 2018

Why small companies can benefit most from Research & Development Tax Credits

Last autumn the Government committed to £2.3bn of investment in research and development (R&D), with R&D tax credits remaining the principal incentive. As a result, companies that qualify for R&D tax credits can claim generous corporation tax relief of up to 230% of eligible costs.

HMRC defines research and development as work that seeks to advance knowledge in the field of science and technology. The R&D must be relevant to the company’s trade. Qualifying expenditure includes the costs of staff engaged, as well as materials used in the R&D activity.

SME's are the big tax winners, with companies employing 500 staff or fewer, a turnover of no more than €100m (£91m) and/ or assets no more than €86m (£78.26 m) able to claim tax relief at a rate of 230% of qualifying expenditure (sterling equivalents at correct at the time of writing).

Loss-making SME's can surrender the tax relief for a repayable tax credit equal to 14.5% of the enhanced deduction (or the unrelieved loss if lower).

Claiming R&D tax credits can be difficult and time consuming, as the legislation and reporting requirements are onerous. R&D reports must be submitted to HMRC in the correct format and must match specific criteria outlined by HMRC guidance. If they do not, there is a risk of submitting an inaccurate claim.

For further information or other tax queries, contact us today.

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