Many small and medium sized businesses (SMEs) are eligible for research and development (R&D) tax credits, but don’t realise. This could be a major issue as these tax incentives are designed to be used for this purpose, and your business could be missing out if you are not claiming them.
In this article we take a look at whether your SME is missing out on R&D tax breaks, establishing whether you qualify to claim, and whether you classify as an SME in this context.
What actually counts as R&D?
There is a great deal of confusion in some businesses over what actually constitutes R&D. However, it is worth noting here that this classification has deliberately made very broad so that as many types of business doing innovative work can potentially benefit from R&D tax incentives.
You are considered to be carrying out R&D if you are carrying out any kind of work that is aimed at resolving scientific or technological uncertainties. This can take a number of different routes and it may be that your business is actually creating new products or services, or that you are adapting or changing an existing process, product or service.
It is also worth noting that you do not need to be successful in your R&D work in order to eligible for tax credits. The incentive is to attempt to succeed – not necessarily to carry it perfectly.
What can my business claim?
The R&D Tax Credit scheme offers SMEs up to 33 per cent on expenses that qualify under the scheme. However, it should be noted that the exact rate that you can claim depends specifically on your position in terms of Corporation Tax, and whether you are making a profit or a loss.
Interestingly, the average R&D tax credit claim is around £55,000 – so if this is something that your company is currently missing out on, it could make a huge different to your ability to carry out the work.
What makes a business eligible for R&D tax credits?
There are a number of details that your business needs to fulfil in order to be able to benefit from R&D tax incentives. It might seem like something quite complicated but actually these issues are very simple and easy to understand.
Firstly, your business needs to be a limited company in the UK – and you must be subject to Corporation Tax. The next two points are related: you must have carried out or been involved in research and development activities that qualify under the scheme and, crucially, you must have spent money on these activities.
And fundamentally it is as simple as that. If your business fulfils these criteria then you are eligible to claim R&D tax credits. However, things then become slightly more complicated when you look into the details. And they key thing to consider here is whether you are an SME.
Does my business classify an SME for tax credit purposes?
Whether your business classifies as an SME has some implication on the schemes which you can apply, and what you can apply for. Once again, however, while many businesses are put off by the perceived complexity, the truth is it is very easy to establish whether or not your business is classed as an SME in this context.
For a governmental tax credit perspective, you class as an SME for R&D tax purposes only if you have fewer than 500 members of staff, and either an annual turnover of no more than €100 million, or gross assets than amount to no more than €86 million. Note that even if your members of staff are far less than 500, but you exceed both of these thresholds then you will not count as an SME.
What should I do if I don’t know if my business qualifies?
If you still are not sure whether your business can claim R&D tax credits, and whether it is eligible to be considered an SME in this context, then it is highly advisable to speak to specialist accounts who deal with small business tax credit issues. They will be able to assess your case individually and provide you with specific information on how much you could claim, and the best way to go about this.