Is your business missing out on Research and Development (R&D) Tax Relief?
5th July 2012
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Is your business missing out on Research and Development (R&D) Tax Relief?

If your business develops new or improved products, systems, services or processes, you could see significant tax savings or receive a cash payment by making an R&D claim. R&D specialists, A1 Lifestyle Accounts and Book-keeping in St Neots will guide you through the process.

Research and Development Tax Relief – a Government incentive that rewards companies undertaking research and development, offering an additional tax deduction of up to 125% of qualifying expenditure... and yet many businesses are not aware of it.

In fact, according to Chartered Accountant, David Brown FCA, Senior Consultant of A1 Lifestyle Accounts and Book-keeping in St Neots, many of their new clients have never benefitted from the relief simply because their previous accountant didn’t let them know that they were eligible, losing out on thousands of pounds as a result of this oversight.

So what is Research and Development Tax Relief?

Each year the R&D Tax Relief – or Tax Credit – Scheme provides approximately £1 billion in tax incentives to encourage UK companies to invest in innovation, allowing costs on relevant projects to be claimed back as a relief for Corporation Tax or providing a smaller cash back.

There are two schemes for claiming relief:

  • The Small and Medium-sized Enterprise (SME) Scheme
  • The Large Company Scheme

If your organisation or company has fewer than 500 employees and either an annual turnover of no more than €100 million or a balance sheet not exceeding €86 million, you could be eligible for the SME Scheme, which means that smaller businesses who make qualifying expenditure on R&D can claim an additional deduction against taxable profits of 125% for this expenditure, and 100% for any expenditure incurred before April 1st 2012.

Larger companies will benefit from a deduction of 30%.

Please note that if you are self-employed, you will be unable to claim R&D Tax Relief and it will be necessary to convert your business into a limited company to enable you to claim it.  The team at A1 Lifestyle Accounts and Book-keeping, St Neots, will be happy to arrange this for you.

So what does this mean in monetary terms?

An illustration of the savings that could be made is as follows:

An SME with an annual profit of £50,000 and costs of £100,000, including £10,000 in research and development, would be liable to pay Corporation Tax amounting to £10,000. However, when applying Research and Development Tax Relief, the profit of £50,000 would be less the additional relief for R&D, totalling £40,000. Therefore, the business would only have to pay £8,000 in Corporation Tax, making a tax free saving of £2,000.

Another example is as follows:

A business that hasn’t made any profit but has spent £10,000 in research and development would not have to pay any Corporation Tax. However, once the Research and Development Relief Tax has been applied, the company would be eligible to receive cash back at a rate of 12.5%, totalling £1,250.

Qualifying expenditure

It is important to distinguish the point at which research and development ends and production begins, but a few examples include:

  • Materials, fuel, water and power directly used whilst carrying out R&D
  • Research and Development-related staff costs
  • Software purchased to carry out R&D

Are you eligible?

As with any Government scheme, finding out if you are eligible and the process of claiming the relief can be complicated. Luckily for businesses in St Neots, we have a Research and Development Tax Relief specialist literally on our doorstep.

Located in Little Paxton on the outskirts of St Neots, A1 Lifestyle Accounts and Book-keeping is one of the few accountants in the area with in-depth experience of R&D tax credits. As Chartered Accountant and Senior Consultant, David Brown, explains:

“Over the years we have taken on new clients and been astounded by the amount of businesses involved in innovation that have lost out on huge tax savings, simply because their previous accountant hadn’t even looked into R&D Tax Credits, let alone lodged a claim.

“Our clients range from home-based businesses that engage in bespoke software to large organisations – if you spend money on research and development we are likely to be able to help you make significant tax savings.”

If you think you may be eligible and are coming up to your financial year end, it is now time to get in touch with A1 Lifestyle Accounts and Book-keeping. You only have up to two years after your financial year end to submit claims, so if you wait until after your year end, you could miss out on a full year’s relief.

A1 Lifestyle Accounts in Cambridgeshire specialise in this type of tax relief..


About the Author

Phill @ The Best of St Neots

Member since: 10th July 2012

Lived in St Neots since 1975 and boy how its changed, always looking to promote everything great in and around our town.

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