Research and Development (R&D) tax relief allows businesses to cut down their corporation tax bill by claiming relief on innovative projects. The initiative encourages businesses to make scientific and technological advances in their industry, no matter how small.
You may be surprised to learn that your project doesn’t need to be highly technical to qualify for R&D. In fact, many companies in the creative industries can use these tax credits to reduce their liabilities — you just need to know how.
Let’s take a look at how R&D tax relief works and how to claim it on your corporation tax return.
What is R&D tax relief?
The Government introduced R&D tax relief as an incentive to reward UK companies for investing in technological innovation. Companies can claim R&D on a wide range of projects — even if they’re unsuccessful.
There are two R&D schemes available in the UK: the SME scheme for smaller companies and the research and development expenditure credit (RDEC) for larger firms.
Under the SME scheme, companies can deduct an extra 86%of their qualifying costs from their profit. This results in a total 186% tax deduction.
If you qualify for the SME scheme and your company makes a loss, you can claim a tax credit worth up to 10% of the surrenderable loss.
Meanwhile, the RDEC scheme offers a 20% tax credit, allowing businesses to claim up to 11p back for every £1 spent on qualifying activities (after corporation tax).
HMRC provides further guidance on different R&D tax reliefs on the Government website.
How do I claim R&D?
Before you can claim R&D tax relief, you’ll need to calculate your total qualifying expenditure. You can claim R&D on a wide range of costs including:
- staff costs
- software costs
- utility bills
- carrying out experiments and trials
- the running of equipment.
Once you’ve worked out the total, you’ll need to enter your qualifying expenditure on your full company tax return form (CT600).
You won’t always know how much you’ve spent on the project until after you’ve submitted your tax return. If this happens, you can amend your tax return up to two years after the of your accounting period.
We’d also need to support your claim by showing how the project:
- looked for an advance in science or technology
- overcame or tried to overcome a technological uncertainty
- could not be easily worked out by a competent professional.
You should provide details such as the start and end dates of the relevant accounting periods and which activities you’re claiming for.
If your project ticks all the boxes above, you may be able to save yourself money on your corporation tax bill. However, R&D tax credits can be complicated, so we’d recommend getting a professional on board to help you make the most of your claim.
As tax relief experts, your accountant can guide you through the process, from working out which activities are eligible for R&D to making the claim on your behalf.
R&D in the creative industry
It’s not just tech gurus and rocket scientists who can benefit from this kind of tax relief. Many creative businesses claim R&D, too. Let’s look at some examples.
As the creative brains behind construction projects, architects frequently need to come up with innovative solutions to real-world problems. Eligible projects could include:
- developing 3D modelling software to help visualise projects
- testing out non-standard building materials
- improving existing architectural processes
Other businesses in the arts are also dependent on technology. For example, film and TV companies are constantly making technological advances by developing or improving things such as:
- animation software
- visual effects tools
- recording techniques
You don’t have to reinvent the wheel. Simply improving existing processes or techniques may qualify for R&D — so long as the project relates to an area of science or technology.
Get in touch with us today to find out if you can cut down your corporation tax bill with R&D tax credits.