Chat with us, powered by LiveChat What are R&D tax credits? | The benefits & how to apply
What are R&D tax credits?
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    Between corporation tax, self-assessment and standard and flat rate VAT, making sure you are fully informed and have all the information you need to complete your taxes can be stressful. However, you should also be aware of things that you can benefit from.

    Research and development tax credits are a reimbursement offered by the government as an incentive for companies in the UK to encourage investment in innovation.

    If you own a business or are developing a product, you could be eligible for a research and development (R&D) tax credit. So, what is R&D tax credit?

    Who can apply for R&D tax credit?

    Companies are eligible for this incentive if they are changing and modifying old products or services or they are creating new products or services. The incentive is available across all companies and industries, so you don’t need to worry about the area you are working in.

    The only constraint is whether you are producing or improving a product. However, this advance must be in your overall field, not just for your business, and only counts if it is entirely new, not just new to your field. You must also prove that this change could not have been easily achieved by a professional in the field in order to qualify for the credit.

    If you are still wondering whether you are eligible and you’re looking for help with these taxes, you might want to consider whether a tax advisor could help to clear things up for your specific situation.

    Download our free guide all about Research and Development Tax credits here:

    What are the benefits of R&D tax credit?

    The main benefit for companies is a cash injection for their businesses. Especially for smaller businesses, this non-repayable funding can be a huge help and means that you can spend more on developing your products or services to ensure higher quality and innovative creations can reach the market.

    The same benefits are available for medium and larger businesses. This is ideal for prompting businesses to explore and invest more in research and development.

    Aside from the direct benefits for you, one of the reasons the government offers this benefit is that it assists with economic growth since every £1 spent on public research and development delivers around £7 net economic benefit to the UK. Furthermore, encouraging further R&D is the first step in helping to put the UK at the forefront of innovation around the world.

    How much will my company benefit?

    There are a few variables that decide how much you could receive if you think you are eligible for research and development tax credits.

    For businesses making a profit, the amount you could be entitled to is up to 25% credit, which is calculated as a percentage of the amount you spend on research and development. You can get slightly extra if you’re running on a loss with the tax credits you can receive being up to 33.35%.

    These are the maximum amounts you can get, however, you should be aware that the amount you receive can change depending on your level of profit or loss. The higher your profit, the more credit you will be entitled to up to the limit of 25%. This also applies to losses – the higher the loss to your business, the higher the amount of credit you’ll get.

    How to apply for R&D credit

    If you’re eligible for R&D credit, you can claim it up to two years after the end of the accounting period which it concerns. You can claim it by treating it as if it’s a deduction from the company’s profits. You will need to make your claim in your company tax return or an amendment to the return.

    How to make applying for R&D tax credit easy

    So, now you know what R&D tax credit is, it’s time to go through the process of applying.

    If you have a busy schedule running your business and creating new services or products, you might want to make things easier for yourself by going to an accountant. WIS Accounting can help you to understand your annual accounting as well as assist with more specific tax issues.

    As a family of businesses, the help we provide doesn’t stop there. We can also assist you with mortgages (WIS Mortgages) as well as business insurance (WIS Business Protection). So, to put your mind at ease and ensure you’re doing the best for your business, why not call us on 0203 011 1898 or fill out our contact form today?

    FAQs

    What qualifies for R&D?

    Any company within any industry can qualify for R&D tax credits as long as they meet a few simple requirements. To qualify for these credits, you need to be changing, modifying or creating either new processes, services or products.

    How much can you claim on R&D tax credits?

    If you’re making a profit, you could be entitled to up to 25% credit repaid from the amount you spend on research and development. On the other hand, if you’re running at a loss, the tax credits you can receive is greater, up to 33.35%.

    Is R&D tax credit taxable?

    R&D tax credits are non-taxable, so they will be shown as either Corporation Tax reductions or as a credit in your income statement.

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