R&D tax incentives, designed to make the UK a more competitive place to do business, are available to a wide range of innovative businesses, not just technology and research focused companies.
By making a relatively straightforward R&D claim, a business can either reduce its tax bill or, in certain circumstances, make a claim to receive cash from HMRC.
As a rough guide, a firm can make an R&D claim if:
If all of the above are true, and the staff and contractor costs of the people involved in the software development are reflected in the limited company accounts, then the limited company may be able to benefit from R&D tax incentives.
SMEs may be able to claim 130% additional tax relief over and above the normal tax relief available for R&D costs.
If the limited company makes a trading loss, then it may be able to surrender the amount of the loss that relates to the R&D spend, and the additional R&D tax relief, for a cash payment. The cash payment is currently 14.5% of the losses foregone – equivalent to £33.35 for every £100 R&D expenditure.
SMEs are limited companies where there are fewer than 500 employees and either an annual turnover of less than €100m, or a balance sheet total of less than €86m (including other entities in the firm’s structure and any other entities in which a 25% interest is held).
If the SME size limits are exceeded then limited companies within a firm’s group structure, may be able to claim under the Research and Development Expenditure Credit (RDEC) scheme.
The RDEC is a taxable credit that can also be offset against the company’s corporation tax liability.
The RDEC rate depends upon when the R&D you are claiming for took place. The RDEC rate is:
For every £100 of R&D spend there is an overall reduction in tax liability of:
If the company has paid no tax, because it made tax losses, it may be able to make a claim at these rates.
As a result of a successful R&D claim, distributable reserves will increase, so a larger dividend can be paid to partners.
The additional dividend will be subject to dividend tax, the rate of which will depend on each partner’s marginal rate of tax, their total dividend income, and the amount of tax-free dividend allowance available.
For each £100 of R&D qualifying expenditure the net amount they will receive after dividend tax at 38.1% is:
If the dividend allowance is available, the net amount they will receive is:
Our specialist team have dealt with R&D claims for many years in a wide range of business sectors. Our advice is pragmatic and tailored to your needs.
We can help you to maximise the available benefits by: