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R&D Tax Incentives for Professional Firms

Research and Development tax incentives are available to more firms than you might expect.

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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.

How your firm can claim R&D incentives

As a rough guide, a firm can make an R&D claim if:

  • the business has invested in software to make the firm run more effectively, for example Customer Relationship Management (CRM) or Data Management System (DMS)
  • the business required technological uncertainties or challenges to be overcome to improve efficiency
  • there is a limited company within the firm’s structure.

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.

Small and medium-sized enterprises (SMEs)

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).

Large enterprises

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:

  • 10% up to 31 March 2015
  • 11% from 1 April 2015 to 31 December 2017
  • 12% from 1 January 2018.

For every £100 of R&D spend there is an overall reduction in tax liability of:

  • £9.72 from 1 January 2018
  • £8.91 from 1 April 2017 to 31 December 2017
  • £8.80 from 1 April 2015 and 31 March 2017.

If the company has paid no tax, because it made tax losses, it may be able to make a claim at these rates.

How R&D claims benefit partners

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:

  • £6.02 for large enterprises
  • £15.29 for SMEs.

If the dividend allowance is available, the net amount they will receive is:

  • £9.72 for larger enterprises
  • £24.70 for SMEs.

How we can help

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:

  • identifying R&D projects
  • preparing your R&D claims
  • dealing with HMRC enquiries
  • renewing and replacing previously understated claims
  • helping set up internal procedures to capture R&D data
  • helping to maximise the benefit from R&D tax losses
  • assisting firms in completing their partnership tax computations and returns
  • assisting partners in completing their personal tax returns.

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